BP WATCH: Shares Jump On Deal Speculation, Hope For New Cap

12th Jul 2010 20:26

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC's (BP, BP.LN) shares jumped in the U.S. and London Monday as deal speculation increased while plans for a new sealing cap also raised hopes for the company's efforts to stop the leak in the Gulf of Mexico. BP's American Depositary Shares were up 7.7% to $36.67 in recent trading and hit an intraday high at $37 Monday, the stock's highest point since early June. It is now up 37% from the 14-year low the stock hit last month, while it is down some 39% from its close April 20, the day the Deepwater Horizon rig exploded. BP's London shares closed 9.4% higher. The rally came as speculation rose that some of BP's assets or even the whole company could be sold. The Wall Street Journal reported that BP was in talks to sell assets to Houston-based Apache Corp. (APA) in a deal that could be valued at as much as $10 billion, while the Sunday Times said Exxon Mobil Corp. (XOM) and another U.S. oil company have asked the U.S. government whether they could bid for BP. Meanwhile, BP said the installation of a sealing cap over the leaking Macondo well was proceeding as planned. The new sealing cap system, plus other measures, is expected to allow the recovery of 60,000 to 80,000 barrels of oil a day in two to three weeks, BP Senior Vice President Kent Wells said Saturday. Also boosting investor sentiment, Collins Stewart told clients in a Monday note that it expects "good" second-quarter results from BP excluding provisions for the oil spill, especially with regard to the company's cash flow. The firm predicts that after capital expenditures and spill containment and cleanup costs, BP's net debt would be "little changed over the quarter in the absence of any dividends." The firm added, "We continue to see good near-term upside in the shares, most particularly if the first relief well is successful in capping the Macondo well." The cost to insure BP's debt fell sharply Monday to $325,000 annually to cover $10 million of bonds for five years, 11% lower than where it closed Friday night, according to CMA DataVision. In the options market, activity was elevated, with more volume in calls, which convey the right to buy shares, than in puts, which convey the right to sell shares. Meanwhile, yields dropped across the board for BP's bonds in the secondary market. BP's 3.875%-coupon notes due March 2015 were the most actively traded, with the risk premium falling 19 basis points to 384 basis points, or a yield of 5.668%, according to MarketAxess. Spreads for BP's bonds have rallied over recent weeks. Andrew Brenner, managing director at Guggenheim Securities, said he has been scooping up BP's bonds in recent weeks as their yields have climbed. "We never felt that BP was going to have to file for bankruptcy," Brenner said. "I think people just got too emotional on the trade and blew out bonds to ridiculous proportions." He started buying BP bonds for clients when the yields on the three-year bonds rose to the 7% area, and continued buying them as the yields climbed into the double digits. Those yields have since come down as sentiment toward BP has gotten less bearish, especially thanks to the deal speculation, but Brenner said he is still finding good values in BP bonds. "You have to remember, your two-year Treasury is still at .64%," he said, adding that the firm will likely continue to own BP's bonds until their yields fall closer to Treasury yields. The yield on BP's three-year notes was recently at 5.779% while the yield on its one-year notes was at 4.015%. "Whether it gets bought by one company or another or investors, we still think it's a good company and has value," Brenner said. "We still like the credit and will continue to play the credit." -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires July 12, 2010 15:26 ET (19:26 GMT)