BP WATCH: BP Shares Pare Declines After Agreement For $20B Fund

16th Jun 2010 18:57

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP shares bounced in the U.S. Wednesday afternoon following reports that the oil giant and the White House had reached a preliminary agreement on a $20 billion fund to help pay for the long-term damages of the Gulf oil disaster, although the shares moved slightly lower in recent trading as other questions remain. News of the preliminary agreement on the escrow fund helped bring some clarity to investors who have struggled in recent weeks to estimate what BP's liabilities might be. Still, BP's time in the black on Wednesday was short-lived, as talks continue on the Obama administration's call for no ceiling on BP's liability if costs of the oil spill cleanup and recovery exceed $20 billion. American depositary shares were off 0.7% in recent trading to $31.18, and the stock closed down 1.5% in London. Meanwhile, activity in options remained elevated, with more volume seen in puts, which are considered bearish because they convey the right to sell, than in calls, which convey the right to buy. The cost to insure BP's debt soared to its highest level ever earlier in the session, before paring a bit following the reports of the $20 billion fund. The company's five-year credit default swaps are still higher than they were Tuesday. The creation of that fund represents "a very good faith gesture" on the part of BP, said Jason Weisberg, senior vice president at Seaport Securities. "The way Wall Street perceives this is that it's pretty tough to penalize a company when they're going above and beyond what they're legally bound to do." He added that investors "see this as an end to the financial bleeding," with the $20 billion helping investors get a better idea of what BP's total liabilities might be. Weisberg noted that with BP's plans to capture more than 50,000 barrels a day from the well and crude currently priced above $77 a barrel, the company's financial ability to fund the $20 billion does not appear to be a concern. Weisberg doesn't own BP, but called the stock "a large beacon on my radar." He added that he would buy the stock if it climbs 5% to 10% from here, as "5% to 10% from these levels would indicate to me that people are investing in the stock beyond the short-term trade. That would probably signal a very long-term bullish direction for the stock." Many other investors, however, remain wary. Among them is Haag Sherman, chief investment officer at Salient Partners. While Sherman doesn't own BP shares, he said President Barack Obama's Tuesday speech accusing BP of operating with "recklessness" and vowing that the company would pay for the disaster wasn't reassuring. "He is trying to avoid this being his Katrina," Sherman said. "He's playing a fine line here between showing resolve in the form of an environmental crisis while not painting such a draconian picture that multinationals will not want to do business in the U.S. Whenever you start telling a foreign company what they need to do as far as escrowing, cutting dividends, etc., I think you're starting to cross the line into the latter camp." Bond investors are voicing similar concern. "It's an unanalyzable situation," said W. Frank Koster, chief investment officer at Dwight Asset Management, which focuses on fixed-income investments. Koster said he felt forunate that the firm exited its bond positions in BP and other companies connected with the Deepwater Horizon rig "at the front end of the spill." In a Wednesday interview with CNBC, Bill Gross, founder and co-chief investment officer at Pacific Investment Management Co., one of the world's biggest bond managers, said BP does offer value, but PIMCO doesn't own a lot of the company's debt as there is "simply too much of a risk to assess at the moment." -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires June 16, 2010 13:57 ET (17:57 GMT)