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Why BP Made Concessions

Stocks in this article: BP RIG APC

(BP dividend suspension story updated for reports of BP plan to sell debt)

NEW YORK ( TheStreet) -- BP (BP) chairman Carl-Henric Svanberg announced from outside the White House that the British oil giant will suspend its dividend at least through the third quarter of 2010, but the task fell to CFO Byron Grote to sell the dividend plan and other major financial concessions to investors on a Wednesday afternoon conference call.

Grote tried to spin all the concessions made by BP as the "prudent" move to increase confidence in the embattled company, which has seen its market value cut in half and its bond ratings knocked down to two notches above junk status, with bond and swaps yields also widening.

British Petroleum Chairman Carl-Henric Svanberg
BP Chairman Carl-Henric Svanberg

BP's dividend suspension will remain in place for the second and third quarters -- in effect, the remainder of 2010. Grote said the board will review the dividend policy again when it reports fourth-quarter earnings at the beginning of 2011. By then, it hopes to have a clearer picture of all the costs and liabilities resulting from the oil spill.

About the BP dividend, Grote said, "the board takes these steps having had deep consideration of all factors and having thought long and hard about it. ... Given the timing of costs and liability associated with the spill, even though business continues to operate well, with strong cash flows, we need to take a deeply conservative fiscal approach to running our business at this time and in that framework we made these decisions today."

Facing questions as to what happened to the reported plans to create a dividend IOU plan, Grote reiterated the prudency of its decisions and said, "We recognize the dislocation this makes for some of our long-term shareholders but the board is looking at what is right over the long-term," and remains committed to dividend payments.

The essential question to the BP CFO on the call could be boiled down to this: if executives had a constructive discussion with the White House, as BP's chairman said, why does it seem that all the concessions were made by BP?

The response from Grote was, over and over again, all the actions taken by BP on Wednesday relate to two primary factors. First, the company has always said it will make good on all legitimate claims resulting from the oil spill and the agreement with the White House provides a framework for this position.

Second, taking an extremely conservative fiscal approach is the oil giant's way of trying to put an end to the market fears and rhetoric that BP is not a viable company given the uncertainty resulting from the spill. Grote noted the comment made by President Obama in his White House briefing, when the President said BP is a strong and viable company and it remains in everyone's best interest that BP remain that way.

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