UPDATE: BP Shares Lead FTSE 100; Goldman Sees Upside Potential

11th Jun 2010 12:29

(Adds comment, updates share price) By Jeffrey Sparshott and Peter Nurse Of DOW JONES NEWSWIRES LONDON (Dow Jones)--BP PLC (BP) shares were leading London's blue-chip FTSE100 index early Friday afternoon as investors regained some confidence in the oil major's ability to cope with the political and financial fallout from the massive oil spill in the Gulf of Mexico. At 1112 GMT, BP shares were up 27 pence, or 7.4%, at 392 pence. The FTSE 100 index was up 0.7%. At Thursday's close, BP's shares had lost more than 40% of their value since the April 20 accident on the Deepwater Horizon platform that killed 11 and led to an offshore oil spill that threatens environmental damage and economic havoc in U.S. Gulf coast states. "BP shares now have as much upside potential as the rest of the European integrated oil sector ... assuming $70 billion of damages and a 10% discount to the rest of the sector ... which suggests that the risk/reward is now tilted to the upside," Goldman Sachs analysts said in a note to clients before London's opening. BP shares fell sharply earlier in the week following increased pressure on management from the U.S. administration to pay increasing damages and slash its dividend. Reports that U.K. Prime Minister David Cameron is poised to weigh in with political support are helping BP's shares, one trader, who asked not to be named, said Friday. The British government Thursday asked the U.S. to "remember the economic value BP brings to people in Britain and America." Also, several brokerage notes have recently made a more detailed "guesstimate" of the potential costs and damages from the Gulf of Mexico oil spill and even under extreme scenarios, analysts suggest the shares are substantially oversold and offer value, the trader added. Those estimates have varied widely. Goldman analysts said the share sell-off through Thursday's close indicated that the market anticipates $40 billion to $50 billion in pretax damages related to the spill, "which is in the upper end of our estimated liability range." The bank outlined a mid-case scenario of $36 billion of damages and a worst-case scenario of $60 billion to $70 billion. "However, uncertainty over the level of damages and on potential funding problems if a material amount of these liabilities mature within the next 12-24 months lead us to keep a neutral rating on the stock," the bank added. Others peg the cost much lower. ING analyst Jason Kenney Friday said BP could face around $6 billion in costs related to the spill, and that even if that figure ballooned the company had more than enough headroom to meet liabilities. "There is going to be a lot of volatility in this stock--there is a lot of political machinations and media speculation," Kenney said. "But BP can financially weather this storm," he added. Kenney has a "buy" rating on BP's shares. Speculation has included the fate of BP's dividend. BP's board could consider cutting or deferring the second-quarter payout that is due to be announced July 27, or paying all or part of it in "scrip," effectively an I.O.U. to shareholders, BP Chief Executive Tony Hayward said in an interview with The Wall Street Journal Thursday. "We are considering all options on the dividend. But no decision has been made," Hayward said. -By Jeffrey Sparshott and Peter Nurse, Dow Jones Newswires; +44 (0)207 842 9347; [email protected] (Andrea Tryphonides and Michele Maatouk contributed to this article.) (END) Dow Jones Newswires June 11, 2010 07:29 ET (11:29 GMT)