BP Shares Lead FTSE100; Goldman Sees Upside Potential

11th Jun 2010 09:21

LONDON (Dow Jones)--BP PLC (BP) shares were leading London's blue-chip FTSE100 index Friday morning following sharp sell-offs earlier in the week. At 0808 GMT, BP shares were up 23 pence, or 6.3%, at 388 pence. The FTSE100 was up 0.3%. At Thursday's close, BP's shares had lost more than 40% of their value since the the April 20 accident on the Deepwater Horizon platform that killed 11 and lead to a massive offshore oil spill in the Gulf of Mexico. "BP shares now have as much upside potential as the rest of the European integrated oil sector ... assuming $70 billion of damages and a 10% discount to the rest of the sector ... which suggests that the risk/reward is now tilted to the upside," Goldman Sachs analysts said in a note to clients before London's opening. BP shares fell sharply earlier in the week following increased pressure on management from the U.S. administration to pay increasing damages and slash its dividend. BP's board could consider cutting or deferring the second-quarter dividend that is due to be announced July 27, or paying all or part of it in "scrip," effectively an I.O.U. to shareholders, BP Chief Executive Tony Hayward said in an interview with The Wall Street Journal Thursday. "We are considering all options on the dividend. But no decision has been made," Hayward said. Meanwhile, estimates on the size of the spill increased. Goldman analysts said the share sell-off through Thursday's close indicated that the market anticipates $40 billion to $50 billion in pretax damages related to the spill, "which is in the upper end of our estimated liability range." "However, uncertainty over the level of damages and on potential funding problems if a material amount of these liabilities mature within the next 12-24 months lead us to keep a Neutral rating on the stock," the bank added. Still, traders Friday said the early rise in share price was understandable. Sam Wright at Spreadex says the speculators are pausing for breath. Another London-based trader says the market has now realized it has mispriced the risk of BP defaulting and it is highly unlikely the company would go bankrupt. (MORE TO FOLLOW) Dow Jones Newswires June 11, 2010 04:21 ET (08:21 GMT)