(BP, Anadarko oil spill story updated for Tuesday close, Holder criminal probe)
NEW YORK (
) -- Shares of
and all the energy stocks involved in the BP oil spill suffered to start the holiday-shortened week on Tuesday. BP conceded failure over the Memorial Day weekend in its top kill effort to stop the oil leaking from the compromised underwater well. Holiday weekends are often used by corporations to hide bad news, but there was no hiding the failure of the BP top kill.
BP shares ended Tuesday's trading session down 15%, with more than 119 million shares traded, four times the BP trading volume average. There has only been one other day, since the oil rig explosion on April 20, on which BP shares have traded at a higher volume -- May 3, when 156 million shares of BP were traded.
, though, was an even bigger loser than BP, ending Tuesday down close to 20%. Close to 45 million shares of Anadarko Petroleum were traded, versus an average daily volume of under 10 million for Anadarko, which owns 25% of the BP Deepwater Horizon well.
Anadarko's 25% stake in the BP well means that it has 25% liability for what many on the Street expect to be unquantifiable damages and liabilities stemming from the oil spill. Yet it wasn't until the BP top kill failed -- and essentially signaled that BP won't be able to stop the oil from gushing for months to come -- that Anadarko had a day as bad as Tuesday.
The most daily volume in Anadarko shares since the oil rig exploded on April 20 was approximately half the level of Tuesday's trading. After Tuesday's $10.23 slide in Anadarko shares, the oil company has declined from over $72 on April 20 to $42.10 at the close on Tuesday, a decline of 42%.
Congress has already introduced legislation to up the liability cap from $75 million to $10 billion and retroactively include the BP oil spill in new liability cap. Yet the real issue may be the Obama administration Attorney General Eric Holder arrived to the Gulf Coast on Tuesday. If there is a criminal conviction against BP and the additional owners of the well, there would be no cap on liabilities. Attorney General Holder officially announced a criminal probe at the close of the market on Tuesday.
The punishment was spread across all the companies with any of the alleged blame to share in the BP oil spill on Tuesday.
Oil rig operator
was down close to 12%. Deep sea engineer
, responsible for the original cementing of the BP well, was down close to 15%, with more than 70 million shares traded on Tuesday, versus an average daily volume of 26 million shares.
The losses were similar for blowout preventer manufacturer
, down by approximately 12% in Tuesday trading.
It wasn't just the oil stocks specifically implicated in the BP oil spill that were suffering in Tuesday trading. With the federal government expected to take a harder line on offshore drilling in the Gulf of Mexico with each day that BP can't get the current oil spill under control, many more volatile stocks involved in offshore oil drilling and drilling services were among the biggest market losers on Tuesday, including
Energy Stock Picks Refiners May Have a Strong Summer
The market cap loss in BP has now reached one-third of the oil giant's value since the oil rig operated by Transocean exploded on April 20.
The total cost to BP for its so-far-failed effort to contain the oil spill was on pace to surpassed the $1 billion mark this week.
While some risk-taking investors had viewed BP as a value play last week as early indications from the top kill effort buoyed optimism, the latest BP setback has turned investors south on the oil giant yet again, and given the optimistic tone of BP comments about the top kill last week, the credibility for future BP assessments will likely dim until definitive proof that the oil leak has stopped or at least been contained.
The market commentary seemed to shift quickly at the market open on Tuesday from last week's "BP is a value buy" to market speculation about BP earnings being crippled by the Gulf of Mexico oil spill, its high dividend being unable to maintain, and even market chatter about a weakened BP becoming a takeover target.
Deutsche Bank analyst Lucas Hermann estimated on Tuesday that the Gulf of Mexico accounts for 14% of BP's estimated 2010 production. The Deutsche Bank analyst indicated that a 1% rise in Gulf of Mexico royalties, a six-month drilling moratorium and a 20% increase in drilling and completion costs would take a near-$2 billion out of BP's bottom line in 2010. If the U.S. moratorium on offshore drilling extends beyond six months, or other countries decide to follow the U.S. lead in banning offshore drilling, the toll on BP's operations becomes even greater.
>>BP Oil Spill Update: Top Kill Fails, What Now?
BP generated $27.7 billion in cash from operations in 2009, yet it's annual dividend costs more than $10 billion and its capital spending campaign over $20 billion annually.
BP can always slash its dividend and cut back on capital spending, but that gives rise to the question,
Can BP survive as an independent company, or will its financial position be so weak that it is inching towards becoming a takeover target?
BP's debt-to-total assets ratio was 19% at the end of fiscal 2009, and it has room to tick its debt plate without becoming immediately overburdened, but the difficulty in quantifying where the potential oil spill damages end makes every quantifiable number a lesser part of a larger guessing game.
-- Reported by Eric Rosenbaum in New York.
>>BP Oil Spill Update: Top Kill Fails, Now What?
>>Oil Spill Losers: BP, Anadarko
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