BP shares plunge as spill continues

published 4 June 2010

BP's shares suffered a 13% fall this week their worst one-day decline since 1992. That followed the failure to stem the Deepwater leak, this time through firing mud and debris into the well. Around £40bn, over a third of BP's pre-accident market capitalisation, has been wiped out in the past few weeks. The slick is now the size of the Home Counties and bigger than the Exxon Valdez spill. It's "the greatest environmental disaster of its kind" in US history, said President Obama. The government has now called for a criminal investigation into the spill.

What the commentators said

This isn't just a problem for "a big bad oil company everyone loves to hate", as Ian Cowie pointed out on Telegraph.co.uk. It also has a big impact on the FTSE 100 index. BP comprises around 7% of its overall market cap, and is a key holding in "most income-hungry pension funds". Last year it paid out £6.6bn in dividends, equivalent to £1 in every £7 paid by FTSE 100 firms. There's also the impact on government finances to consider, said Alex Brummer in the Daily Mail. Last year BP paid £5bn in tax; in 2008, when oil prices were higher, £10bn. As BP's costs mount, the tax paid will fall.

A major risk to BP is punitive damages, said Lex in the FT. "If the scale of the damage to the Gulf ecosystem and the industries that depend on it" is as bad as some fear, then the consequent total financial burden "could cause BP lasting harm". Also causing great uncertainty is BP's future in the US, which accounts for 40% of the company's business. Things look set to "become much more difficult [there] for many years to come", said Ed Crooks in the FT. Given all this and the ongoing share-price slide, said Rob Cox on Breakingviews, it's no wonder many fear BP is now vulnerable to a takeover.