BP WATCH: BP's US Shares Rise As Well Testing Begins

15th Jul 2010 19:57

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC's (BP, BP.LN) shares rose Thursday as the company began a test that will show whether a recently placed cap can entirely seal off a damaged well in the Gulf of Mexico. BP's American depositary shares rose 2.9% to $37.22 in recent trading, reversing a two-day slump that had come on delays for the test. The stock has now recovered 31% of its slide since the explosion of the Deepwater Horizon rig. "The stock is starting to price in the fact that they are eventually going to get this leak stopped," said Andrew Fitzpatrick, director of investments at Hinsdale Associates. "They seem to be a little ahead of schedule with that." The sentiment in other markets toward BP was mixed Thursday. BP's London shares rose just 0.2%, and the cost to insure the company's debt rose slightly. The cost was recently at $370,000 annually to cover $10 million of bonds for five years, up from $359,000 as of Wednesday's close, according to Markit. In the options market, investors leaned toward BP call contracts conveying the right to purchase shares versus puts giving the right to sell. The action came as BP fixed a leaking line that had been delaying a key test of a recently placed cap on a damaged well in the U.S. Gulf of Mexico. The U.K. oil giant is ready to begin testing again, retired U.S. Coast Guard Adm. Thad Allen said in a teleconference Thursday, noting the test could last up to 48 hours and if all goes well, the cap could eventually seal off the well. Analysts at Citigroup Global Markets said in a note to clients that "controlling the well and stemming the oil flow is critical in giving some closure on the extent of the spill and should allow the assessment of costs to begin." The firm has a buy rating on BP's shares, and noted "the path back to fundamental valuation remains volatile for BP and the stock will continue to be blown about by speculation, whether about liabilities, damages or corporate actions." Still, Citi said that when the stock experiences "weakness this speculation might inspire," investors should buy the stock. The firm pointed to BP's strong cash position and expectations for the company to dispose of about $10 billion in non-core assets. Speculation that BP might be a takeover target has helped reverse losses in the stock. A report from Bloomberg News on Thursday said BP is moving toward a deal with oil and gas explorer-producer Apache Corp. (APA) to sell assets priced between $10 billion and $11 billion, possibly all in cash, with an agreement to come as soon as next week. The report, citing two people familiar with the matter, says a sale of BP assets to Apache would include half of BP's stake in Alaska's Prudhoe Bay field. Meanwhile, the Obama administration said Thursday that BP must pay royalties on oil and gas collected from the broken well in the Gulf of Mexico. It would also be liable for royalties on lost or wasted oil if it is determined that negligence or regulatory violations contributed to the spill disaster. "It continues to be a positive that there may be some type of acquisition or investment in the stock, and that's why I think we'll see it run up a bit, but that's certainly countered by the unknown liabilities," Fitzpatrick said. "There's a lot of mixed signals here for the stock." Fitzpatrick said there are BP stock positions in some of his clients' accounts, but they have been reduced from prior to the spill and he has no plans to add back any exposure in the near term. "With most current clients, I'm holding it and participating in this upside," he said. "But I'm still not at the point where I would be a buyer." -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires July 15, 2010 14:57 ET (18:57 GMT)