BP shares plunge on oil spill fallout fears

By JANE WARDELL AP Business Writer

LONDON (AP) - Shares in BP plunged again in early trading in London - extending a sell-off in New York - as U.S. political pressure intensified on the British oil company to halt dividend payments and fork out greater compensation for the Gulf of Mexico oil spill.

The stock dropped 9.3 percent to 355 pence ($5.18) in the morning session as analysts said it was increasingly likely that the company would postpone the payment of dividends to shareholders.

Some investors also fretted about the rising costs facing BP after President Barack Obama's administration suggested it should pay unemployment benefits to thousands of oil workers laid off during a moratorium on deep-sea drilling triggered by the spill.

BP tried to reassure investors before the London Stock Exchange opened, saying it was in a strong financial position and it saw no reason to justify the U.S. sell-off, and many analysts agree that the company can withstand the crisis.

But most market experts also acknowledge that the political rhetoric surrounding the accident was outweighing financial fundamentals.

"We don't believe BP has a funding issue but given the overwhelmingly hostile nature of the U.S. government the company may decide to suspend payments until the wells are capped and the clean-up sufficiently advanced to convince the US that it can afford all the costs as well as pay dividends," said Evolution Securities analyst Richard Griffith. "Unilateral action against BP over its U.S. operations, be it unreasonable or illegal, hangs over BP."

The politics of the spill crossed the Atlantic on Thursday, with London Mayor Boris Johnson expressing concern about the "anti-British rhetoric that seems to be permeating from America."

Johnson said that BP was paying a "very, very heavy price" for an accident.

"I would like to see a bit of cool heads rather than endlessly buck-passing and name-calling," Johnson told BBC Radio. "When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves."

Cutting the dividend would have a big impact in Britain, where the company accounts for about an eighth of dividend payments from companies in that country's blue-chip stock index, providing crucial income for retirees. In addition, about 40 percent of BP's shareholders are based in the U.S.

BP, which earned more than $16 billion last year, said Thursday that the cost of the clean-up and containment efforts had now hit $1.43 billion.

Speaking to investors last week, CEO Tony Hayward wouldn't estimate the total bill, though he told analysts that minority partners in the rig would be expected to pay as well.

BP stressed on Thurday that it had "significant capacity and flexibility" to deal with ongoing costs, underlining its additional cash flow, strong debt to equity ratio and proven reserves.

The company reminded investors that it had indicated in March - before the explosion at the Deepwater Horizon rig - that its cash inflows and outflows were balanced at an oil price of around $60 per barrel.

It said its gearing was currently below the bottom of its targeted range and its asset base was "strong and valuable." The company had more than 18 million barrels of proven reserves and 63 billion barrels of resources at the end of 2009.

The share price falls in London and New York have wiped out around half the company's market value.