BP shares fall after lawsuit, raising dividend concerns

17th December 2010

The US Justice Department filed a civil lawsuit on Wednesday against BP and several other firms connected to the disaster.  The Deepwater Horizon rig operator and others with a financial stake in the oil well were also named as defendants.  The claims seek penalties and damages under the Oil Pollution Act and the Clean Water Act. 

The Justice Department wants to hold some defendants liable without limitation for oil-spill removal costs and damage to natural resources.  Other penalties under the Clean Water Act could also cost BP dearly.  The US can seek as much as US$1,100 per barrel spilled, or higher if gross negligence is proved. 

The FT puts the estimated cost at US$21 billion.  Other legal actions by private individuals, mainly for loss of livelihood, could raise the total compensation bill much higher. 

In June, BP promised a US$20 billion compensation fund, backed by its own assets.    The company's website claims it had already paid out over US$4 billion by early this month. Further funding will come from asset sales, a cut in capital spending and the suspension of BP's dividend from June 2010.

For investors, the longer term affect will be a smaller BP, potentially with lower earnings and growth prospects.  Of more immediate concern is the loss of the BP dividend for the time being.

The latest Capita Registrars UK Dividend Monitor states: "In Q3, BP would have paid out over 9% of the UK's dividends, roughly £1.8bn- £2bn."  The figure is worth more than the entire dividend paid by the FTSE 250, it adds.

BP has confirmed its intention to review its dividend policy when full year results are presented on 1st February 2011.  That may be ahead of market expectations in terms of timing, according to Merrill Lynch analysts.  Yet others doubt the company will be able or willing to return to its previous payout level of 14 cents per share.

Wall Street Journal readers are in two minds about the fairness of the latest court action against BP. Jerry OConnor wrote: "What a joke! The Justice Department by and large lets the financial wizards on wall street that brought this country to it's knees get a free pass, then a company that by all indication did everything in its power to take responsibility for its mistakes…..and oh by the way there hasn't been a catastrophic collapse of the Gulf economy best one can tell…..and they want to prosecute. ANOTHER example of tax payer dollars being misdirected as far as I'm concerned"

Leave a Reply

Your email address will not be published. Required fields are marked *