BP WATCH: BP Shares, Options Reflect Concerns Over Liabilities

15th Jun 2010 12:35

(This article was originally published Monday.) By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Shares of BP Plc (BP) fell Monday in London and the U.S., erasing some gains from late last week, as investors fretted over how additional funding demands from the U.S. to pay for damages from the oil spill could impact the oil giant. In the U.S., BP's American depositary shares were recently down 8.7% at $31.02, erasing Friday's rally and part of Thursday's, although it is still above the 52-week low hit last Wednesday at $29. In London, BP's shares fell 9.3%. In other markets, the action was similarly bearish. The volume in put options, which convey the right to sell, was elevated and higher than the volume in call options, which convey the right to buy. Credit-default swaps for BP, which represent the cost to insure its bonds, widened throughout Monday's session and from Friday. The action came as U.S. Senate Majority Leader Harry Reid (D., Nev.) and members of the Democratic caucus on Monday asked BP to set aside $20 billion in a special account to be used to pay for economic damages and clean-up costs of the spill in the Gulf Coast. The lawmakers made the request in a letter to BP Chief Executive Tony Hayward and asked for a response by no later than Friday. The letter comes as U.S. President Barack Obama is preparing to ask BP to set up an independently administered fund for reimbursing victims. The calls for increased funding from BP raised investors' worries about the potential extent of the company's liabilities related to the Gulf of Mexico oil spill. "At this juncture we are not big proponents on buying BP while it's down," said John Stoltzfus, senior market strategist at Ticonderoga Securities. "We think the problems are significant. It would appear to us to be a stock that is in trouble near term and likely to be for quite a while." However, Stoltzfus said he would recommend looking at companies whose stocks have suffered with BP's but have less or no exposure to the Gulf of Mexico and could see increases in demand. Moody's Investors Service said in a Monday report that the oil spill created "an unprecedented financial, legal, regulatory and environmental crisis for the companies that operate" in the Gulf of Mexico. Moody's also cautioned that while the valuations for companies operating in the Gulf "are expected to rebound eventually, it is difficult to tell when the market will regain its appetite for the risk involved in deepwater production." Still, some analysts contend that there are buying opportunities in companies exposed to the oil spill, including in BP. In a Monday note to clients, Oppenheimer analysts wrote, "we believe the upside potential from current price levels is significantly greater than any further downside risk from the oil spill." The firm added that BP's shares now are pricing in "the worst-case scenario of more than $60 billion in potential financial damages and penalties, which, even if they materialize, are likely to be spread over several years, and therefore, would not constrain the company financially." -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires June 15, 2010 07:35 ET (11:35 GMT)