BP: BP has spent a round billion dollars trying to cap the underwater gusher in the Gulf of Mexico, but it is hardly closer to stopping it now than when the Deepwater Horizon rig exploded and sank 43 days ago. The damage to the share price is also approaching catastrophe levels. After another plunge on Tuesday following the failure of the “top kill”, what used to be Britain’s biggest company by market value has slumped by 35 per cent in six weeks.
The latest bout of selling may look like panic, but is not entirely irrational. Some funds fear contamination of their own reputation by association. Others rely heavily on cash from the oil majors — Shell and BP between them paid a quarter of the UK market’s total dividends of £50 billion last year — and can see that BP’s dividend is at risk. Income funds cannot hold shares which yield nothing.
It would be politically foolish for BP, which is currently declaring dividends at the rate of $10 billion a year, to carry on paying as if nothing much was wrong, even if the balance sheet could stand it. It still has time to seize the initiative on this subject, at least. The company should announce the suspension of all dividend payments until the catastrophe is resolved and there is a clear view of the likely total cost.
If the oil flow is not stopped, then there is no limit to that total cost. Those drilling the relief wells must hit a target two feet across, a mile under water and a further half-mile through the sea-bed, bending the drill pipe as they go.
This is at the limit of what is technically feasible, and they are working under relentless pressure for speed and the looming threat of hurricanes.
The worst case scarcely bears thinking about. The second-worst case leaves BP so badly damaged, financially and politically, that it can no longer continue as a stand-alone company. The chances of that may still be low, but they are no longer negligible.
