UpdateBP stock sinks 9.7% as finances face new sources of strain

14 June 2010 21:30  [Source: ICIS news]

BP protester(adds details throughout)

HOUSTON (ICIS news)--BP stocks plunged 9.7% on Monday as the federal government may force the company to establish an escrow account to pay for the oil-spill clean-up, creating another source of strain on the company's finances.

Already, BP could face a bewildering variety of lawsuits under federal law as well as Alabama, Florida, Louisiana and Mississippi law, the four states most likely to suffer damages from the spill, according to a presentation by David Adelman, an environmental law professor at the University of Texas.

On Monday, members of the US Senate sent a letter to BP chief executive, Tony Hayward, demanding that the company establish a $20bn (€17bn) account set aside for damages and clean-up costs.

Earlier, Florida Attorney General Bill McCollum requested that BP establish an escrow account worth at least $2.5bn to cover state claims and damages.

More risk could come from President Barack Obama, who was visiting the Gulf coast this week and giving a nationwide address on Tuesday, said David Pursell, managing director of Tudor, Pickering, Holt and Co, an energy investment bank.

Oil began spewing from the bottom of the Gulf of Mexico after a 20 April explosion sank the BP-operated Deepwater Horizon offshore rig. BP said on Monday that the cost of its response to date amounts to approximately $1.6bn.

According to the latest estimates, the well was releasing as much as 40,000 bbl/day of oil into the Gulf of Mexico. If the well had leaked that much oil for 51 days, it would have filled nearly 130 Olympic sized swimming pools, according to ICIS.

A single 2-m deep pool large enough to hold that much oil would cover nearly 21 square kilometres.

Under the federal Oil Pollution Act, BP could face unlimited clean-up costs, according to Adelman. However, the law places a $75m cap on damages.

Louisiana law resembles the federal law, meaning that BP would have unlimited clean-up costs and a cap on damages, Adelman said.

In Florida, clean-up costs were capped, while damages to the environment are unlimited, Adelman said.

For Alabama, BP could face damages if plaintiffs could establish negligence, he said.

Adelman's presentation did not cover the possibility of criminal charges - which the US government was investigating.

Overall, BP stock fell on Monday because of growing uncertainty about the Gulf oil spill, Pursell said.

In particular, if BP were forced to establish an escrow account, that would put pressure on the company's liquidity, Pursell said. As a result, BP may temporarily suspend its dividend.

BP was still far from selling off actual assets, Pursell said.

Moreover, the government would likely avoid pushing BP too far, since that could threaten clean-up funds, Pursell said.

"BP is worth more alive than dead," Pursell said. "If alive they are spinning off cash."

Shares of BP traded at closed at $30.67 on the New York Stock Exchange. The stock was near its 52-week low of $29.00, a level at which the company last traded in 1996.

BP shares trade on US stock markets through American depositary receipts (ADR), which allow foreign stock to trade in the nation's market.

($1 = €0.83)

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