BP WATCH: BP's Shares Rise As Increased Spend Seen Encouraging

28th Jun 2010 19:13

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC's (BP) shares rose in the U.S. and London Monday as investors saw Friday's drop to 14-year lows as overdone. In addition, worries about the impact of Tropical Storm Alex waned. And while BP said that the cost of containment, cleanup and compensation tied to the Gulf of Mexico spill is now running at a rate of $100 million a day, some investors saw that as an encouraging sign that the company is willing to spend more now with hopes of ultimately getting past the disaster sooner. "The more they spend, as far as we're concerned right now, the better," said Glenn Tongue, managing partner of T2 Partners, which has been a buyer of BP shares in recent weeks. "What we'd like to have happen is have them get through this stage of clean up, spend as much as they can, clean it up and get through this investment stage of risk." BP said Monday that the total cost of oil spill containment, cleanup and compensation has risen to $2.65 billion, compared with $2.35 billion Friday. The daily rate of $100 million compares with $6 million a day in April, when the leak began. Meanwhile, high seas resulting from the storm may delay BP's plans to increase the amount of oil collected from a leaking well in the Gulf of Mexico by a week, Kent Wells, a senior vice president with BP, said Monday. Still, with the storm's winds expected to stay far to the west of the spill, the expected impact of the storm on BP's spill efforts has eased from what investors had been fearing just last week. Alex's waves won't disrupt the drilling of relief wells aimed at cutting off the flow of oil more than two miles below the sea floor, Wells said. With the storm fears subsiding, more investors saw BP's Friday decline as excessive. After sinking to a 14-year low of $26.83 on Friday, the American depositary shares of BP were recently up 4 cents, or 0.2%, to $27.07, and had earlier risen as high as $28.03. In London, BP's shares also recovered a bit, closing up 1.2%. T2 says it bought more BP shares Friday. Today, the value-focused firm's BP position stands at around $7.5 million, or about 5% of its $150 million portfolio. T2's thesis in owning BP shares, Tongue said, is that "the net present value of the cost of the tragedy, when deducted from the value of the business, leaves a business that's worth quite a bit more than what it's trading at." However, UniCredit told clients in a Monday research note that a valuation-focused analysis of BP "overlooks the operational impact of the incident on BP's business model and how most of the strengths highlighted by BP in its March 2010 Strategy Update are now turning into weaknesses, thus undermining the key pillar of BP's equity story." For example, the firm said while BP may have in the past touted its access to resources, UniCredit believes that after the Gulf of Mexico spill, BP is likely to see "rising scrutiny of regulators and more caution from governments." UniCredit also said in the Monday note that BP's best option would be to separate its U.S. assets from its rest-of-world assets. Such a move would make the U.S. assets "the worst case scenario," while the rest-of-world segment "would be able to operate, invest and pay dividends without the uncertainties surrounding the consequences" of the oil spill. Even T2 has some concern about BP, which has prompted the firm to limit the size of its position in the stock. "This is not a situation that we know how to hedge," Tongue said. "If Berkshire Hathaway was in this kind of price distress, we would never hesitate to make it larger than this size of position." The cost to insure against BP defaulting on its bonds for five years fell to $560,000 Monday for $10 million of coverage, down from $604,000 at Friday's close, according to Markit. Options activity was muted compared with recent days, although there was slightly more volume in puts, which convey the right to sell, than in calls, which convey the right to buy. -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires June 28, 2010 14:13 ET (18:13 GMT)