Panicked investors dump BP stock

Concern is growing that BP may not survive the Gulf of Mexico oil spill as investors panic, pushing shares and bonds to fresh lows.

BP bonds and credit-default swaps are now trading as if the energy company has lost its investment-grade credit rating as costs mount from the clean-up of the worst oil spill in US history.

The stock dropped 16 per cent by the close of trading yesterday morning - easily its worst day since the Deepwater Horizon rig exploded seven weeks ago. BP has lost half its market value, a stunning US$95 billion ($140.5 billion), in that time.

"The piece of news that seems to have broken the camel's back was an increase of estimated spill volumes," said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.

BP's securities were hammered after Ian MacDonald, an oceanographer at Florida State University in Tallahassee, estimated the well is leaking 26,500 barrels to 30,000 barrels a day into the Gulf of Mexico, six times more than the figure used by BP and the Government from April 28 to May 27.

"It's not time for logic. It's not time for being rational," Fadel Gheit, energy analyst with Oppenheimer & Co, said of the selling.

"When people say run, you run too. It's a mob mentality."

Political pressure is building on BP to slash its dividend or suspend it altogether until the well is capped and hundreds of kilometres of coastline have been cleaned up.

"People are anticipating there's a chance that BP, Transocean and Anadarko are going to bankruptcy," said Scott Hanold, an analyst with RBC Capital Markets. "It's feeding on itself now."

He noted the cost to insure the debt of all three companies shot up, a sign investors are increasingly worried about their ability to pay off what they owe.

In Washington, the point man for the Government's response to the spill said BP was capturing more than 2.4 million litres a day from the gushing well, an elevated figure that could mean both BP and the Government have vastly underestimated the totals so far.

Estimates for the total cost of the spill grow with every barrel that BP's failed well belches into the Gulf and with each oil-covered pelican or turtle that washes up on a devastated beach.

Argus Research analyst Phil Weiss said BP did exactly what it should not have with investors in response to the spill. "They over-promised and under-delivered."

BP told investors last week that it had "considerable firepower" to cover the cost of the spill and to give funds to investors.

Cutting the dividend would have a big impact in Britain. BP accounts for about an eighth of dividend payments from companies in that country's blue-chip stock index, providing crucial income for retirees.

In addition, about 40 per cent of BP's shareholders are based in the US.

Chief executive Tony Hayward said last week minority partners like Anadarko would be expected to pay as well.

Gheit and other analysts say investors are overlooking the fact that BP has deep enough pockets to pay for the spill, fines and damages. But ratings agencies Moody's, Standard & Poor's and Fitch have all downgraded the company.

Matt Simmons, chairman emeritus of energy investment banking company Simmons International, said the oil spill would mean the end of BP as evidence mounts that the spill is far worse than first thought.

"There's no way the company can survive this."

- AP, Bloomberg