BP shares plummet amid talk of increased spill costs

Shares in BP dropped to their lowest level in 13 years overnight amid fears that the US government will impose significantly increased financial penalties on the embattled oil company over the gulf of Mexico oil spill.

The companies stock price dropped by 12 per cent ahead of London trading, before making a modest recovery. The company’s share price opened at its lowest since 1997 at 345 pence before gradually recovering to 365p by midday. In total, the company’s share price has dropped by about 47 per cent since the beginning of the Gulf of Mexico crisis in mid-April.

Rumours that BP could face a takeover attempt by Chinese oil giant PetroChina also surfaced this morning prompting a brief gain in the company’s stock price.

The company has suffered in credit markets with credit provider Markit comparing the price that investors pay to protect against potential default by BP to the “junk” rating given to companies in dire straights.

The significant drop in share price has been attributed to the rising condemnation from the US administration in recent days over the firm’s handling of the Gulf of Mexico oil spill.

US President Obama said earlier this week that he would have fired BP’s chief executive Tony Hayward if he worked for him, while on Wednesday night US associate attorney general Thomas Perrelli warned that the US government may block BP from paying a dividend to its share holders.

The White House also said that it would force BP to pay the wages of oil industry staff laid off in the last month following the government-imposed moratorium on deep water drilling.

BP responded to the slide in its stock by defending its response to the Deepwater Horizon disaster, claiming that it could see no valid reasons for the share drop.

“BP notes the fall in its share price in US trading last night,” the company said in a statement. “The company is not aware of any reason which justifies this share price movement.”

The company went on to defend its financial position and its cash and oil reserves. “BP faces this situation as a strong company. In March, we indicated that the company’s cash inflows and outflows were balanced at an oil price of around $60/barrel. This was before the costs of the incident,” BP stated.

BP hinted that it has significant resources to respond to any financial penalties the US government may seek to impose. “Our asset base is strong and valuable, with more than 18bn barrels of proved reserves and 63bn barrels of resources as at the end of 2009,” it said. “All of the above gives us significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims.”

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