The Associated Press
BP's latest efforts to curtail the oil leak in the Gulf of Mexico encountered a setback Wednesday as a manoeuvre to cap a broken pipe ran into trouble.
But some investors say the $60-billion (U.S.) of BP PLC market capitalization wiped out by the catastrophe is overdone, betting the company will be able to absorb the costs associated with the spill.
After a series of high-profile failures that have forced BP to abandon efforts to plug the out-of-control Macondo well, the company launched a second attempt to place a cap over the leak and funnel the oil to surface, where it can be safely stored in a ship.
The operation requires severing the 1,500 metre riser pipe, which once joined the well to the surface but now lies crumpled on the ocean floor, so a new pipe can be placed over the well. But a blade used by one of the company's underwater robots became stuck, creating more uncertainty over whether the operation will succeed. Later Wednesday, BP announced it had freed the saw and was continuing with the operation.
"Anybody whose ever used a saw will know once in a while it binds up. That's what's happening here," U.S. National Incident Commander Thad Allen said Wednesday morning.
The stuck blade has raised worries that the robots will not be able to cleanly shear the pipe, which could create problems when the company tries to place a cap over the pipe. A messy cut will require a larger dome to cover it, leading to less oil being captured.
"There's a direct relationship between how smooth that cut is and the device we can put over it," Adm. Allen said. "It's a question of how much precision we can bring to it."
Shares of BP rebounded modestly Wednesday, after plunging 15 per cent Tuesday after the company's weekend efforts to stop the leak failed and as the U.S. government launched criminal and civil investigations into the spill.
Some investors argue that investor panic has far exceeded the probable cost to the company.
The cleanup tab "could be anywhere from $10- to $15-billion over many, many years - does that warrant a [share]wipeout?" said Dom Grestoni, head of the North American equity group at I.G. Investment Management.
BP's market value plummeted by $17-billion on Tuesday alone. In total, its shares have lost about $60-billion since the Deepwater Horizon rig caught fire and sank in April, triggering an oil spill that has spread over vast stretches of the Gulf of Mexico and is now threatening the Florida Panhandle coast.
But I.G., which holds several billion dollars worth of BP shares in its European and global dividend funds, has in the last few days bought up hundreds of thousands of additional shares for one of its more aggressive funds. It believes BP is a competent company capable of stopping the leak and regaining its credibility.
"I'm not sure that I would bid for the whole company, but I would say in a nutshell I think the concerns about [the well]remaining out of control are overdone. I doubt that BP will be put out of business," Mr. Grestoni said. "It's not that they're some dark demon ready to turn the Gulf of Mexico black.''
Still, investor concerns have been further stoked by the twin civil and criminal investigations aimed at BP, and by the likelihood of expensive new regulations. U.S. President Barack Obama urged lawmakers to delete some oil and gas tax breaks Wednesday, while a pair of powerful senators - Democrats Charles Schumer and Ron Wyden - penned a letter to BP chief executive officer Tony Hayward demanding the company cancel its dividend payments until it knows how much the spill will cost to clean up.
Mr. Hayward told the Financial Times Wednesday that BP was not fully prepared for a deepwater leak, and some analysts believe further setbacks in the effort to stanch the oil flow would further depress share prices.
A new report, however, suggests that BP can call upon its existing resources to shoulder up to $35-billion in cleanup costs, and could easily borrow another $15-billion.
"BP has more than enough financial firepower to handle $35- to $50-billion in costs," said Brian Gibbons, the Credit Sights analyst who co-authored the report.
But financing a cleanup cost of that magnitude will require the company, which is self-insured, to sell some assets, trim its capital spending and cut its $10.5-billion-a-year in dividend payments.
Although the Times of London reported that BP will not take that step - the company will hold an investor call later this week to reassure investors - a dividend cut would be the most reasonable route to financing the cleanup, Mr. Gibbons said.
"They would probably take a stock hit," he said. "But we're in a situation where the stock is already down 35, 40 per cent. Cutting the dividend is, I think, probably an increasing reality for most of the investor base out there."
BP did not return a call for comment.
With files from reporter Josh Wingrove
Nathan VanderKlippe