BP WATCH: BP's Shares Rise On Hopes For Abu Dhabi To Buy Stake

7th Jul 2010 18:34

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC's (BP) shares rose in the U.S. and in London Wednesday, extending their recent winning streak, as investors grew hopeful that a meeting between Chief Executive Tony Hayward and Abu Dhabi's powerful Crown Prince Mohammed bin Zayed Al Nahyan could result in a boost to the oil giant's capital. BP's American depositary shares were up 2.8% to $32.82 in recent trading, up nearly 23% from its 14-year low hit last month but still down some 46% from April 20, when the Deepwater Horizon rig exploded. The U.S. shares hadn't traded above $32 since June 18. In London, BP's stock closed 4.8% higher. Options in BP were active, with greater volume in calls, which are considered bullish because they convey the right to buy shares, than in puts, which convey the right to sell shares. The action in credit-default swaps also reflected improved sentiment toward BP, as the cost to insure against BP defaulting on its debt for five years fell to $410,000 for $10 million of coverage from $418,000 at Tuesday's close and from $572,000 at Friday's close, according to Markit, a data provider. Wednesday, BP's Hayward met with Abu Dhabi's powerful crown prince during a visit to the oil-rich sheikdom Wednesday, and said that he would be happy to see the city state's sovereign wealth fund buy a stake of up to 10% in BP, a person with knowledge of the meeting told Zawya Dow Jones. An investment from Abu Dhabi could be significant not only in boosting BP's capital but also in providing the embattled oil company with an influential friend as it prepares to fend off any possible hostile takeover from a larger international rival. The sheikdom controls 90% of the oil in the United Arab Emirates and is a key U.S. ally in the Middle East. In turn, investors were encouraged by the thought of Abu Dhabi taking a stake in BP, despite their apparent relief Tuesday after BP said it wouldn't issue any new equity. "So, evidently it is good to not sell stock ... and it is also good to sell stock (if to the right/strategic investor)," Tudor Pickering wrote in a Wednesday note to clients. "Smells like an oversold/overshorted name that is rallying on any bit of news that isn't bad." With BP's U.S. shares up 11% for the week so far, Robert Pavlik, chief market strategist at Banyan Partners, said the gains appear to come largely from short-term speculators as opposed to long-term investors. "When somebody steps up and says we're interested in taking a position in it, it not only adds to some speculative value in the company but it scares the shorts out of it, so there might be a little bit of a short squeeze going on," Pavlik said. To Pavlik, BP still looks far too risky. "It's something we have been staying away from," he said. "It has so much headline risk. You just don't know where the light at the end of the tunnel is." -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires July 07, 2010 13:34 ET (17:34 GMT)