Charlie Riedel
BP PLC is facing a mounting financial toll from its Gulf of Mexico blowout with growing political pressure to cut its $11-billion (U.S.) annual dividend, and a downgrade of its debt that will make borrowing more expensive.
Embattled BP chief executive officer Tony Hayward is scheduled to address investors Friday - the first time he will have talked publicly about the financial impact of the crisis - and is expected to reaffirm that the company will pay its quarterly dividend this summer despite calls from Washington to halt payment.
Mr. Hayward sought to reassure Americans on Thursday that the company is doing everything it can to deal the gushing well, as it prepared to install a cap on the wellhead riser and then funnel crude to a tanker on the surface 1,500 metres above the sea floor.
He promised the company would clean up every drop of oil, and "restore the shoreline to its original state."
"We will be here for a very long time. We realize this is just the beginning," the chief executive said, who told the Financial Times in Thursday's edition that his company was unprepared for the scale of the blowout.
The impact of the blowout is quickly spreading throughout the oil industry. A week after ordering a suspension of deepwater drilling in the Gulf of Mexico, the U.S. government sent notice that it was shutting down such activity in shallower water, a move that sent oil prices higher on markets in New York.
As it struggles to contain the biggest environmental crisis in U.S. history, BP is increasingly finding itself the target of political attacks from Washington, where lawmakers are demanding it cease dividend payments until the crisis and the cleanup is over, and are debating bills to raise BP's cap on economic compensation from $75-million to $10-billion (U.S.) Earlier this week, New York Senator Chuck Schumer and his Oregon colleague, Ron Wyden, sent a sharply worded letter to the company, saying it would be "unfathomable" for BP to pay the dividend before the final cost of the blowout and spill is known.
Credit Suisse analysts estimate BP could face $35-billion (U.S.) in fines, compensation and cleanup costs. The U.S. government presented the company with a bill for $70-million on Thursday, which represents a modest down payment on future demands to reimburse Washington's costs of responding.
Mr. Hayward - whose job security is being debated - deflected questions Thursday about the dividend, saying only that the company would meet its obligations to "stakeholders." As a shareholder himself, the CEO would earn $420,000 if the company pays the entire annual dividend.
Analysts believe the company has the financial capacity to cover its liabilities from the blowout, plus fund its $20-billion capital expenditure program and pay $11-billion in dividends, which at $3.36 per share represents an attractive 8.5-per-cent yield at the current stock price.
After a brutal selloff earlier in the week, BP shares recovered 4 per cent, climbing $1.61 to $39.27 in New York on Thursday.
"Based on the cash flow projects that we have for BP, they do not have to cut the dividend," said Pavel Molchanov, Houston-based analyst with Raymond James Ltd.
"Just because they don't have to cut the dividend doesn't mean they won't. There's the political pressure from Washington and that's tricky. We'll have to see how management balances that pressure versus pressure from shareholders to retain the dividend."
Mr. Molchanov said BP is a favourite investment for British pensions funds, who are counting on receiving the dividend at a time when the share price has lost a third of its value and their other U.K. and European investments have been battered.
BP has also come under fire from rating agencies Moody's Investors Service Inc. and Fitch Inc., both of which downgraded its debt a notch. Though analysts say the company still has plenty of borrowing power, the downgrades represent another note of concern about the company's immediate future. Moody's said it has put the company on watch for further downgrades.
Moody's managing director David Staples said the agency would be reviewing ultimate containment and cleanup costs, the allocation of liability in the Macondo accident and the company's exposure to lawsuits.
It will also assess the impact on BP's long-term business prospects in the U.S., and the increased costs for tightened regulations and heightened industry safety practices in the U.S. and around the world.
BP has increasingly focusing on offshore deepwater prospects around the world. Just a month before the Macondo blow-out, it agreed to buy offshore assets in the Gulf of Mexico, Brazil and Azerbaijan from Oklahoma-based Devon Energy Corp.