Monday, November 29, 1999

Grilling awaits BP boss as spill deal lifts shares

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BP Chief Executive Tony Hayward was set to face the wrath of U.S. lawmakers on Thursday as investors welcomed a plan to set up a $20-billion fund to cope with Gulf of Mexico oil spill claims.Shares in BP, which nearly halved in value since the April 20 explosion on an offshore rig that led to the spill, rose 8 percent. Analysts said some of the heat had been taken off the company by its move to set up the fund and suspend its dividend.U.S. President Barack Obama announced the agreement on Wednesday after White House officials held four hours of talks with BP executives. The British company's bosses emerged from the discussions to offer an apology for the worst oil spill in U.S. history."Investors were seriously worried that BP as we know it was under threat and that the company could be broken up or forced into liquidation. What we see now for the first time is that Obama is not going to bring BP to its knees," said Tom Nelson, co-manager at the Guiness Atkinson Global Energy Fund, which owns BP stock.The cost of insuring BP debt against default, which hit record levels ahead of the deal, fell 145 basis points to 400 basis points, according to data from Markit. This is still a level corresponding to a sub-investment grade company.A top-20 investor in BP was unimpressed."They have ceded a lot of ground to politicians," said the investor. "In the fullness of time, someone's got to have to pay the price."BP CEO Tony Hayward will appear at a congressional hearing later on Thursday to explain the events leading up to the spill and what BP has done to clean up the mess.A number of other oil companies were seen to throw BP to the wolves in hearings this week, portraying themselves as a cut above the London-based firm in terms of safety practices and operational standards.Hayward, in turn, will try to widen the circle of blame on Thursday and is expected to rebuff those claims.The entire industry needs to improve, and it is too early to understand the cause of the "complex accident", Hayward said in prepared testimony, adding that "A number of companies are involved, including BP," in the disaster.Graphics also will be under pressure to avoid another gaffe that could further damage BP's dented reputation.He was forced to apologise publicly after telling Gulf residents last month that he would "like my life back," a comment widely viewed as insensitive in face of the region's struggle to contain the impact of the slick and the deaths caused by the explosion.BP Chairman Carl-Henric Svanberg on Wednesday said the company was not greedy and cared "about the small people." He, too, apologised and issued a statement saying he "spoke clumsily."BP announced a $10 billion asset sale programme as part of the deal, and bankers said most divestments would come from outside the United States. Oppenheimer & Co analyst Fadel Gheit pegged the value of the company's assets at more than $250 billion.The sales will take place in a red-hot market: oil and gas deal activity is at a record high this year, with more than $128.5 billion of transactions worldwide through June 4.Any move by BP to cancel or suspend dividends is an emotive issue in the UK, where it accounts for 12-13 percent of payouts."We are taking the view that BP will plug the oil well later this year and will be back on the dividend paying list next year," George Luckraft, lead manager of the 200 million pound AXA Framlington Equity Income Fund. "If you sell BP now, you will only have to buy it back next year and probably at a higher price. So we are holding onto the stock at the moment."BP accounts for 4 percent of his fund.Politicians on both sides of the Atlantic have weighed into the debate. UK finance minister George Osborne told a radio channel: "Let's not forget this is a very important company, not just to the British economy but to the American economy as well. And we want it to succeed and flourish in the future for all our sakes."GRILLING LIKELYThe explosion on an offshore rig leased by BP killed 11 workers and ruptured a deep sea well. The ensuing spill has fouled 120 miles (190 km) of U.S. coastline, imperilled multi-billion dollar fishing and tourism industries and killed birds, sea turtles and dolphins.Public anger over the handling of the crisis is intense, especially on the U.S. Gulf Coast.Obama has sharpened his criticism of BP, and lawmakers have publicly grilled the company's executives, particularly Hayward. It is expected to be no different on Thursday when the BP chief executive visits Capitol Hill.Obama has watched support fade as his fellow Democrats gear up for tough congressional elections in November. With many voters riveted by the crisis, lawmakers are unlikely to go soft on Hayward.The company said on Wednesday it started a second system to siphon oil from the leaking well, a day after a team of U.S. scientists raised their high-end estimate of the amount of crude oil flowing from the well by 50 percent to between 35,000 and 60,000 barrels per day.The government's probe of the spill, shared by the Coast Guard and the Interior Department's Minerals Management Service (MMS), will also come under scrutiny on Thursday when the Interior Department's inspector general, Mary Kendall, testifies before a U.S. House of Representatives hearing.Meanwhile, frustration grows for Gulf residents who are scared that the spill will kill the region's share of offshore oil drilling, which is a critical source of well-paid jobs in several relatively poor U.S. states, primarily Louisiana.And the number of oil-soaked birds caught and transferred to a wildlife-cleaning facility at Fort Jackson, Louisiana, has more than doubled in less than two weeks to 570."Every day is different and it's impossible to know what's going to come through the door," said Paul Kelway of the International Bird Rescue Research Center as a worker cleaned crude from brown pelicans, holding the bird's massive bills.(Additional reporting by Matt Spetalnick, Caren Bohan, Patricia Zengerle and Alister Bull in Washington, Raji Menon and Sarah Young in London, Kristen Hays in Houston,Braden Reddall in San Francisco and Jeffrey Jones in Buras, Louisiana; Writing by Sitaraman Shankar and Peter Henderson, Editing by Andrew Callus)
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