BP shareholders under more pressure with demand that company create victims fund

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BP shares and shareholders under more pressure

BP shareholders who have already lost billions because of the spill in the Gulf of Mexico now must deal with the federal government’s demand that the oil company set up a multibillion-dollar fund to help victims of the spill.

That potential fund and the possibility that BP could forgo its second-quarter dividend drove the stock down again Monday after a small rebound at the end of last week. BP shares fell $3.30, or 9.7 percent, to close at $30.67 in New York. The shares were worth $60.48 when the Transocean rig it was leasing exploded on April 20 and later sank. BP has lost about $90 billion in value.

Transocean shares dropped $2.07, or 4.4 percent, to close at $44.78.

On Monday BP held a board meeting to discuss deferring its second-quarter dividend and putting the money into escrow until it knows how much the spill will cost. BP spokeswoman Sheila Williams in London said the company was aware of President Barack Obama’s demand for a compensation fund, but declined to comment further.

The White House said that BP appears willing to set up a victims compensation fund, as President Barack Obama has demanded. Spokesman Bill Burton said the White House and BP are “working out the particulars,” such as the amount of the fund and how it will be administered.

Obama is expected to meet with BP executives, including embattled CEO Tony Hayward, on Wednesday. The president expects them to establish a compensation fund for people and companies hurt by the spill, administered by an independent panel.

Obama also has pressured the company to accelerate efforts to control the spill. The Coast Guard said Monday that BP is stepping up those efforts.

Hayward is also scheduled to testify about the spill and cleanup efforts before a House subcommittee on Thursday. In a letter to Hayward ahead of the hearing, Rep. Henry Waxman (D-Calif.) said the panel’s investigation of the accident “is raising serious questions about the decisions made by BP in the days and hours before the explosion on the Deepwater Horizon.”

Waxman added, “BP appears to have made multiple decisions for economic reasons that increased the danger of a catastrophic well failure.”

Although the tab for the cleanup and damages will run well into the billions, many analysts agree with the company that it has the ability to continue to pay its dividend as well as the spill. Still, they believe the company will defer the dividend, put the funds into escrow or pay it in shares.

At the current quarterly dividend rate of 84 cents per American depositary share, BP’s dividend rate is an extraordinarily high 10 percent.

“I expect the dividend to be cut or suspended as a means of addressing some of the political pressure it’s under,” said Phil Weiss of Argus Research. “I think at this point the board recognizes that as well.”

Jonathan Jackson, head of equities of Killik & Co. in London said the call by the Obama administration for a fund for victims of the spill appears to be an attempt to show that the government is doing something. He said he expects BP to go along with the fund and to halt the dividend for now.

“Again, for political reasons, there is a good chance the payout will be suspended until the leak is stopped and there is more clarity over the cost of the cleanup,” he said.

On Monday, BP said its costs for responding to the spill had risen to $1.6 billion. That includes new $25 million grants to Florida, Alabama and Mississippi, plus the first $60 million for a project to build barrier islands off the Louisiana coast. The estimate does not include future costs for scores of damage lawsuits already filed.