BP punished as shares hit 14-year low

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The Independent Online

Beleaguered oil giant BP took more stock market punishment today as shares collapsed to a 14-year low amid growing fears of a short-term funding crisis sparked by the Gulf of Mexico disaster.

As much as £5.5 billion was wiped off the under-fire oil giant as shares plunged 9% at one point to below 300p - levels not seen since August 1996.

BP rallied slightly but finished more than 6% down - the worst performer in the FTSE 100 Index. It has now seen its market value tumble by more than £60 billion since the Deepwater Horizon oil rig exploded on April 20, killing 11 workers.

Despite assurances over measures to improve the capture of oil and progress on relief wells to kill the flow, BP said clean-up costs had risen to 2.35 billion US dollars (£1.6 billion).

And insuring BP's debt for five years now costs 5.85% - meaning an investor holding £10 million in BP debt must pay £585,000 to protect itself against default, according to financial research firm Markit.

The cost of insuring for one year is higher at 7.25% - a clear signal of market worries over the immediate costs faced by BP which would make any debt funding move far more expensive.

Analysts at Nomura said a 10 billion dollar (£6.7 billion) funding injection from a major investor such as a Middle East wealth fund could shore up market doubts at a time when debt funding is dear and asset sales may take time.

The move would be similar to that made by Barclays at the height of the financial crisis in 2008, when the bank raised emergency capital from Abu Dhabi and Qatar to avoid taking taxpayer cash.

BP insists it is in a strong position to tackle the spill - generating 30 billion dollars (£20.1 billion) in cash a year, with 10 billion dollars in committed or stand-by banking facilities, planned asset sales of 10 billion dollars and around five billion dollars (£3.4 billion) saved from cutting the dividend.

But there are also worries over the approaching hurricane season in the Gulf, with reports of a potential storm next week that could hamper the response operation.

CMC Markets analyst Michael Hewson said: "With bad weather closing in it seems that BP continues to lurch from one crisis to another."

The group has so far captured around 364,500 barrels of oil through its containment system, but it is estimated around 35,000 to 60,000 barrels a day are continuing to pour from the well.

BP chief executive Tony Hayward officially handed over day-to-day control of the Gulf of Mexico crisis to BP board director Bob Dudley earlier this week as it set up a new division to manage the spill.

The group was reportedly planning a mammoth fundraising programme to shore up its finances as the clean-up bill soars.

As well as the ongoing cost of the operation and claims, it has also set aside a 20 billion dollar (£13.5 billion) compensation fund for those affected by the spill.

Mr Hayward is said to have told staff yesterday that operating results due out next month will be "very strong", although he recognised the group's need to sell assets and show balance sheet strength to deal with the liabilities.

Nomura said worries over short-term credit risk were "highly damaging" for BP, limiting its ability to fund at attractive rates as well as sell off assets at decent prices.

"We see pressure growing on the company to assure sufficient funding to cap the well," Nomura's Alastair Syme said.