BP shares bounce higher as investors bank on retention of dividend

BP shares bounce higher ahead of investor update

LONDON — Shares in BP PLC bounced higher on Friday — the first gains after days of losses — as investors gambled on the company retaining its dividend despite the Gulf of Mexico oil spill and objections from U.S. lawmakers.

The stock was trading up 3.6 percent at 447.85 pence ($0.6558) ahead of a planned briefing for investors, which analysts view as crunch time for the beleaguered company as it struggles to contain the massive spill.

BP Chief Executive Tony Hayward, under pressure after a number of gaffes since the April 20 explosion that killed 11 people, will be trying to reassure worried investors after a huge shares sell-off in recent weeks that has wiped some $70 billion off the value of the company.

The spill has cost the company more than $1 billion to date and analysts suggest the final bill could be 10 to 20 times that amount, when fines, lawsuits and years of cleanup are taken into account. The U.S. government has opened criminal and civil investigations.

Ratings agencies Moody’s and Fitch have downgraded the company, with Fitch warning further downgrades are possible if the clean up and political fallout are more costly than the agency’s worst case $5 billion scenario.

Aside from the disaster’s cost, investors are eagerly anticipating what Hayward has to say about the company’s upcoming dividend payment.

Some lawmakers have said it’s not right for the company to hand out billions to shareholders at a time when the complete cost of the oil spill is unknown, but investors are keen to see their returns.

Collins Stewart analysts said Hayward was likely to maintain the dividend as the company’s balance sheet was in good shape, despite the likely costs.

BP earned more than $16 billion last year. It has a generous annual dividend yield of 8.9 percent, compared with 2.8 percent for Exxon Mobil and 6.5 percent for Royal Dutch Shell.

“In practice the dividend looks safe, at least for now,” analysts Gordon Gray and James Evans said in a note. “However, we expect any explicit BP comment on dividend security to attract considerable negative attention from both the U.S. press and government.”

BP’s briefing comes as the success of its latest attempt to stem the flow of oil remains uncertain. The oil firm is working on cutting a section of pipe from the leaking Deepwater Horizon well before using robot submarines to lower a containment cap over the site.

The company said Friday it has established a $360 million escrow account to immediately fund the construction of six sections of Louisiana barrier islands as ordered by the U.S. government.

But it added that because the environmental implications of the projects “are not fully understood” it was assuming no liability “for unexpected or unintended consequences.”

BP has already provided $170 million to Louisiana, Alabama, Mississippi and Florida to help with their response costs and help promote their tourism industries.

The company has also paid approximately $43 million in compensation to people and companies affected by the spill.