BP warns cost of oil spill will be severe

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The Independent Online

Oil giant BP today warned the financial impact on the group of the devastating Gulf of Mexico oil leak would be "severe".

But embattled BP bosses told worried investors and pension savers they would "meet our obligations" amid fears the group was preparing to slash its dividend payout.



In a briefing with BP shareholders and analysts, chief executive Tony Hayward said it would be another 48 hours before it is clear if latest attempts to contain the oil leak are working.



The group is taking fierce criticism of its response to the disaster from US President Barack Obama, who said he was "furious" about the oil spill and accused BP of not responding quickly enough.



Dividends are seen as crucial for investors and Britain's pension funds, accounting for around £1 in every £7 of UK blue chip dividend income each year.



BP said: "We fully understand the importance of our dividend to our shareholders.



"Future decisions on the quarterly dividend will be made by the board, as they always have been, on the basis of the circumstances at the time.



"All factors will be considered and the decision taken in the long term interests of the shareholders."



Mr Tony Hayward added: "The financial consequences of this incident will undoubtedly be severe, but BP is a strong company and we have weathered many storms before."



BP has already spent more than one billion US dollars (£682 million) on containment and clean-up efforts since the the Deepwater Horizon rig exploded and sank on April 20, killing 11 workers.



It said in today's investor update that spending was set to continue at this rate "for some time beyond" work to stop the flow of oil.



BP hopes immediate costs for cleaning up and plugging the leak will largely be taken by the end of 2010, but stressed the long-term costs were still unknown.



The firm aims to provide more details on costs when it releases second quarter figures on July 27.



BP is also due to announce its next shareholder dividend on that day, but is scheduled to pay out a previously announced dividend before then, on June 22.



Mr Hayward, who is also facing questions over his position at the helm of the group since the disaster struck, said people wanted a "simple answer", but added the incident was a "complex accident brought about by an unprecedented combination of failures".



He said: "It is too early and not up to us to decide where the blame lies."



BP is facing the threat of criminal proceedings after the US government launched a criminal and civil investigation earlier this week.



Its shares have lost more than a third of their value since the disaster struck.



The stock has clawed back from the worst of its falls as bargain hunters have begun to move in on shares and as confidence builds around BP's new move to contain the leak.



Shares rose as much as 4% today, although gains were pared back after BP failed to give a commitment on dividend payouts in the investor briefing.



BP faces a tough balancing act, caught between worried investors and an increasingly angry US government.



It is a key stock for millions of investors and pension fund savers, with BP accounting for about 6% of all the UK equity money held by defined benefit pension schemes.



BP's share price movement also has a major bearing on the wider FTSE 100 Index, making up 7% of the Footsie.



While its shares have fought back in the past two days, the stock is still at risk until the leak is brought under control and with the final financial bill still unknown.



Its current efforts to control the leak have seen the firm install a giant cap on to the well using robot submarines, which it hopes will allow it to pump most of the oil to ships on the surface.



BP's last "top kill" attempt to block the leaking oil well proved unsuccessful.



If the latest operation fails, the firm may be left with no other option than to rely on drilling relief wells that will take three months to complete.



Oil is spewing from the well at a rate of 12,000 to 19,000 barrels a day, meaning that between 18 and 40 million gallons have already been dumped into the Gulf, according to US government estimates.



Mr Hayward said: "Everyone at BP is heartbroken by this event, by the loss of life and by the damage to the environment and to the livelihoods of the people of the Gulf Coast.



"It should not have happened and we are bound and determined to learn every lesson to try and ensure it never happens again."



The group announced it would set up a standalone organisation to manage its long-term response once the spill is over, headed by managing director Bob Dudley.

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