BP Stock Tanks, Trading Below Book Value - TheStreet

BP Stock Tanks, Trading Below Book Value

Fears that BP won't be able to avoid a dividend cut are resulting in some more big losses for the oil spill loser on Wednesday.
Publish date:

(BP stock story updated from Wednesday, June 9, to included statements from BP)



) -- Shares of


(BP) - Get Report

plummeted Wednesday by 15.8% -- to another new 52-week low, the first BP low under the $30 mark -- and some indications on Wednesday were that more investors were gravitating to the idea that the oil giant can't avoid a dividend cut.

It's not the financial strain on BP, but the political pressure from President Obama on down through the ranks of U.S. political power brokers in the Senate who have been pressuring BP to drop the dividend during the oil spill crisis.

There are larger fears that BP can't survive as a company, and the spread on BP credit default swaps has spiked, and serves more or less as a proxy for the market's fears that BP could ultimately default on bonds.

It's hard to distinguish between big institutional investors selling on fears that their BP dividend income is about the become extinct, and investors fearing the worst, that BP will join the list of extinct, or at least bankrupt companies, soon enough.

After the sudden plunge in BP's value in the early afternoon on Wednesday, with selling accelerating after the midday mark, the oil giant mired in the Gulf of Mexico oil spill was trading below book value.

BP said Thursday, before the stock began trading on the London Stock Exchange, that it wasn't aware of any reason to justify the selloff.

In a statement . BP underlined its strong financial position and said it has "significant capacity and flexibility" to deal with the cost of responding to the oil spill.

"BP notes the fall in its share price in U.S. trading last night," the company said. "The company is not aware of any reason which justifies this share price movement."

"BP faces this situation as a strong company. Under the current trading environment, we are generating significant additional cash flow," BP added.

More on BP BP's Stock Going to Zero

BP's market cap on Wednesday afternoon of $92 billion represented more than a 50% market cap decline for BP since the time the oil spill crisis ensued. BP's new 52-week intra-day low on Wednesday dipped under the $29 mark, and BP shares ended the day at $29.20. It was a 14-year low in BP shares.

There have only been three days since the oil rig exploded in the Gulf of Mexico on April 20 during which more than 100 million shares of BP were traded, and Wednesday was by far the biggest volume day for BP. The heavy afternoon selling had BP's one-day share volume on Wednesday reach above the 226 million share mark. Average daily volume in BP trading is slightly under 48 million, and that average had been skewed higher as the trading in BP shares accelerated over the past seven weeks.

The BP dividend -- the largest dividend among peers in the oil sector -- has become a central question in the financial aspects of the BP oil spill. It is the most immediate concern of investors, with concerns about BP also running all the way to the rampant speculation that BP will be taken out in a distressed acquisition.

Some analysts say it is a fool's game to try to call the BP dividend situation. BP said in its investor call last Friday -- during which the subject of the dividend cut was a key issue -- that it would make a decision on the dividend scheduled for July 27 as a matter of its regular dividend review and corporate governance policy.

Some analysts read the comment from BP as a signal that it did not plan to cut the dividend, while other analysts said the boilerplate corporate governance language was just a stall tactic out ahead of an inevitable dividend cut.

On Wednesday, the latest market call on the BP dividend was offering by Societe Generale analysts, who said there is a 50% chance that BP suspends the dividend payment.



noted in a recent article that BP CEO Hayward refused to cut the dividend even during the worst moments of the financial crisis, and even when oil was under $40 a barrel. Hayward made a seemingly innocent quip to investors in 2008 that now has unexpected implications, when the BP CEO said, "I pay taxes, so I don't go to jail. I pay dividends, so I don't get fired."

BP announced on Tuesday it will pay out its last "non-controversial" dividend to shareholders of record in the first quarter on June 21, to a total tune of just over $2.6 billion. The dividend payout for the first quarter is twice the amount BP has paid so far in its effort to contain and cleanup the oil spill in the Gulf of Mexico.

The BP dividend yield has edged higher as the problems 5,000 feet below the surface of the Gulf of Mexico have brought down BP's market value by $60 billion to $70 billion, depending on the day of the week. Last Friday, the BP dividend yield was near 9%.

Many pension funds in the U.K. rely on the hefty BP dividend, which in 2009 equaled 14% of total shareholder payout from the FTSE 100 index, according to a report in the

Wall Street Journal

on Tuesday.

Wednesday afternoon was not kind to shares of BP oil spill stocks.

Anadarko Petroleum

(APC) - Get Report

, which owns 25% of the BP oil spill well, was down to an even greater degree than BP on Wednesday, with an 18.6% loss.

It was the second day in the past two weeks during which sudden heavy selling caused by the BP oil spill hit Anadarko the hardest, following a big drop in Anadarko shares on June 1. On June 1, Anadarko saw its share price fall by more than $10. On Wednesday, Anadarko shares swooned by $8.

BP's oil rig partner at the eye of the oil spill "blame storm",


(RIG) - Get Report

, was down another 8% on Wednesday.

In his testimony before the Senate Energy and Natural Resources Committee on Wednesday, Interior Secretary Ken Salazar refused to say that the six-month ban on deepwater offshore drilling would not be extended to a longer-term ban. Salazar would only say that the length of the ban is being evaluated on an ongoing basis, and will be dependent on how long it takes a presidential commission to complete a review of the oil spill's causes.

Will BP Cut Its Dividend?

Is a BP Dividend Cut Coming?

-- Reported by Eric Rosenbaum in New York.


>>Is a BP Dividend Cut Coming?

>>BP Oil Spill Update: Oil Plumes Real, Claims Unpaid

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