BP WATCH: BP's Shares Rise As Deal Speculation Increases

30th Jun 2010 16:55

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC's (BP) shares rose Wednesday in the U.S. and London as rising speculation of potential deal activity had investors increasingly viewing the oil giant's assets, and possibly the company as a whole, as an acquisition target. BP's American depositary shares rose 3.3% to $28.56 in recent trading after Russian oil major TNK-BP Ltd., which is jointly owned by BP and a group of Russian businessmen, said it would be interested in buying assets from its U.K. shareholder as a platform for international expansion. The statement comes a day after J.P. Morgan Cazenove in London released a note to clients exploring various possible M&A scenarios and suggesting that a tie-up between Exxon Mobil Corp. (XOM) and BP could work nicely. Analyst Fred Lucas wrote: "We believe the economics of such a potential combination are compelling, and we question why the market is not factoring in the possibility of it ever happening." That idea also lifted the stock, which is now up nearly 6% for the week to date and almost 7% from the 14-year intraday low it hit last week. Nevertheless, BP is still down 53% from April 20, when the Deepwater Horizon rig exploded. In London, BP's shares rose 4.9%. Meanwhile, the cost to insure against BP defaulting on its bonds for five years was at $550,000 Wednesday for $10 million of coverage, down slightly from $552,000 at Tuesday's close and down a more significant amount from Friday's $604,000, according to Markit. Options trading on BP was elevated, with more volume in calls, which convey the right to buy shares, than in puts, which convey the right to sell the stock. BP plans to sell off $10 billion of noncore exploration and production assets this year to provide a cushion against future liabilities from the Gulf of Mexico spill. The company has discussed selling some assets to its Russian joint venture, Maxim Barsky, deputy chief executive of TNK-BP, said Wednesday. However, investors continue to voice concerns over the uncertainty of BP's ultimate liabilities. A U.S. Senate panel on Wednesday voted to remove the cap on damage claims that BP would have to pay for the Gulf of Mexico oil spill. The current limit on claims for damage that goes beyond the costs of cleanup is $75 million, which is widely regarded on Capitol Hill as too low. "People are interested in their assets because they're good assets," said Bill Stone, chief investment strategist at PNC Wealth Management. "The thing is, you've got this thing hanging over it where it's just hard to quantify. On television you just continue to see this well spewing that oil with an unknown end date and unknown liability. It just makes it borderline impossible to put some sort of idea on the ultimate downside risk." In turn, Stone said his firm is not including BP shares in its recommended models. "Most of us can model things relatively well, but when you have a liability that continues to really grow, that makes it real difficult," he said. "That adds another variable." -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires June 30, 2010 11:55 ET (15:55 GMT)