Oil giant BP said it would cut four quarters of dividends, significantly reduce its investment program and sell $10 billion of assets to fund a planned $20 billion fund to pay for its Gulf of Mexico oil spill.
KEY POINTS: * The commitments, outlined in a statement on Wednesday, are harsher penalties than most investors had expected and follow BP chairman Carl-Henric Svanberg's meeting with President Obama on Wednesday. * The decisions to cut investment and sell assets come despite the fact BP is only committed to putting $5 billion this year into the new fund, which will be administered by a body independent from BP. * In 2011 and beyond, BP will make payments into the fund of $1.25 billion per quarter, until the fund amounts to $20 billion.
TIM GHRISKEY, CHIEF INVESTMENT OFFICER, SOLARIS ASSET MANAGEMENT, BEDFORD HILLS, NEW YORK:
It seems like all of this was well discussed between BP and the administration, that BP is being cooperative with the administration, and the Obama administration is being very realistic here about what can be expected.
The fact that the dividend is being cut for the rest of year certainly makes sense and helps build up the fund... The last thing we need is for BP to file for some sort of bankruptcy, so I think this is a very well organized and orchestrated meeting of the minds to keep both sides happy.
I think the (Obama) administration wanted a public display that shareholders were going to suffer here as well.
KURT WULFF, ANALYST, MCDEP LLC, NEEDHAM, MASSACHUSETTS:
Investors probably have a fairly thought-out idea that maybe the US operations may be sacrificed, but that the rest of BP would be worth the current stock price.
The market for oil and gas properties is ultimately very good. The ultimate question is what it's offshore oil assets worth. The onshore market should continue strong, and once the leak is capped, people will feel better about the offshore market.
CHARLES LIEBERMAN, CHIEF INVESTMENT OFFICER, ADVISORS CAPITAL MANAGEMENT, PARAMUS, NEW JERSEY:
Essentially the $20 billion is a down payment, and BP has chosen to cut its dividends to save cash because that $20 billion is not a cap.
The ultimate value of the shares will be a function of what the ultimate cost of the cleanup and the penalties, I don't think this by itself will have a significant bearing on the shares.
The only stocks vulnerable to this move are those that have exposure to the well, Anadarko and Transocean, I don't think the rest of the energy sector will suffer but it isn't clear.
The situation has been very much politicized. Politicians historically have always been happy to spend other people's money so the administration will want to stick it to BP as best it can to punish them for the spill.
CHIP HANLON, PRESIDENT, DELTA GLOBAL ADVISORS, HUNTINGTON BEACH, CALIFORNIA:
The market expected it and everyone was prepared for this, which is the only reason the stock is reacting the way it is. This was probably a necessary step, and while people might want to gripe about the idea of the president of the United States demanding this ransom, from a market standpoint, the unknown is worse. The shares are up on the hope that $20 billion might represent some kind of upside limit to what they could have to pay, though that isn't clear right now.
GARY BRADSHAW, PORTFOLIO MANAGER, HODGES CAPITAL MANAGEMENT, DALLAS, TEXAS:
(The removal of uncertainty) is probably the biggest part of it. BP has ample resources, they'll cash flow $30 billion this year -- they are not going to turn those other wells off, they are going to keep flowing and the refiners are going to keep going. BP, as far as cash flow, is a very healthy situation. It removed some of the uncertainty out there and investors can look at the stock now and make decisions.
The liability issue is still open ended and we won't know that but I would think another catalyst for the stock in a positive way would be when they get this thing capped. Hopefully, they say early August, you never know for sure but if they get that relief well drilled and get that thing shut off where we don't have to sit here and watch that oil spewing out is going to make everybody feel great. The whole deal is now we've got some certainty, they are setting aside the $20 billion over a period of time, they won't pay the dividend for this year, and there is just a little bit more certainty to it than there was 30 minutes ago.
DERRICK WULF, PORTFOLIO MANAGER, DWIGHT ASSET MANAGEMENT, BURLINGTON, VERMONT
There is no really immediate market action. It hasn't really change things. There is still so much information that we do not yet know. It is very difficult to handicap how big the cost of the clean-up will ultimately be. Most the damage we may have not even seen yet. I don't know whether this fund will resolve the uncertainty.