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BP shares plunge as U.S. threatens new penalties

Wed Jun 9, 2010 6:11pm EDT

(Reuters) – British energy giant BP Plc’s stock price plunged to a 14-year low in U.S. trading on Wednesday as the Obama administration threatened to impose new penalties on it over the worst oil spill in U.S. history.

Turning up the heat on the beleaguered company, a senior U.S. Justice Department official said after the markets closed that the department was “planning to take action” to ensure BP had enough money on hand to cover damages from the Gulf of Mexico spill.

Earlier, BP depositary shares trading in New York fell nearly 16 percent to close at $29.20, their lowest level since August 1996, on growing worries about the costs the company will have to assume.

U.S. Interior Secretary Ken Salazar told a Senate hearing he would ask the British oil giant to repay the salaries of any workers laid off because of the six-month moratorium on deepwater exploratory drilling imposed by the U.S. government after the spill.

BP’s total bill so far, including cleanup costs, has reached $1.25 billion and the U.S. government has already said it will have to pay billions more in penalties.

The White House echoed Salazar’s comments.

“The moratorium is as a result of the accident that BP caused. It is an economic loss for those workers, and … those are claims that BP should pay,” White House spokesman Robert Gibbs told a briefing.

BP believes it may be heading for a showdown with the White House over widening demands on spill-related costs, a BP source said. While the company has said it will pay for the clean-up and direct damages to those affected by the spill, the moratorium was a government decision and costs related to it were a different matter, the source said.

Earlier, the company’s stock closed down 4 percent in London on concerns the company might have to suspend its dividend payment. U.S. politicians have been calling for this, saying the company should put its cash into paying for legal claims and environmental damage in the Gulf.

At a congressional hearing on Wednesday, one lawmaker asked U.S. Associate Attorney General Thomas Perrelli whether the Justice Department had the ability to issue an injunction against BP to stop it paying its dividend.

“We are looking very closely at this and we are planning to take action,” he said.

BP officials have said they have enough cash to handle the crisis. But the market has shown less confidence. With Wednesday’s share price drop in New York, BP has given up more than half its market value since the crisis began.

“The confidence in BP being able to stop the oil leak and deal with the ecological aftermath has disappeared,” said TD Ameritrade chief derivatives strategist Joe Kinahan.

Illustrating analysts’ anxiety about BP’s dividend, in the past two days alone, seven have cut their expectations on the likely payout.

The cost of protecting BP’s debt against default hit new highs on Wednesday.

The spill began on April 20 after an oil rig exploded, killing 11 workers and rupturing the deep-sea well. It has caused environmental devastation along the U.S. Gulf Coast and threatens lucrative fishing and tourist industries.

The Obama administration, facing growing voter discontent over its own handling of the crisis, has sought to distance itself from the company. President Barack Obama has also toughened his rhetoric in recent days and said in an interview this week he would fire BP CEO Tony Hayward if he worked for him.

In a further sign of the administration’s pressure on BP, Coast Guard Admiral Thad Allen, who is leading the government relief effort, demanded that the company provide more information and transparency on how it was meeting damages claims by individuals and businesses affected by the spill.

“The federal government and the public expects BP’s claims process to fully address the needs of impacted individuals and businesses,” Allen said in a June 8 letter to BP.

BP has paid out close to $50 million in damages claims so far along the Gulf Coast — mostly to fishermen, shrimpers, oystermen and boat operators who say their livelihoods have been impacted by the spill.

Meanwhile, BP America President Lamar McKay, along with top executives from Exxon Mobil Corp, Chevron Corp, ConocoPhillips and Shell Oil Co, were called to testify at a June 15 congressional hearing that will look at the oil spill and America’s energy future.

At the scene of the spill, BP continued to siphon off oil from its blown-out oil well in the Gulf of Mexico.

Allen told reporters that BP planned to move another rig to the spill site on June 14. This would enable the company to boost its capacity to collect oil from the well to 28,000 barrels (1.18 million gallons/4.45 million liters) a day, he said.

Allen did not indicate this meant the flow rate of the oil could be as high as 28,000 barrels a day, but his comments are likely to underscore that neither BP nor the government have yet managed to determine just how much oil is gushing out.

Government scientists have estimated that the leak spews 12,000-19,000 barrels a day, with one estimate as high as 25,000 barrels. They are due to present revised estimates later this week or early next week.


The spill has already fouled wildlife refuges in Louisiana and barrier islands in Mississippi and Alabama. It has also sent tar balls ashore on beaches in Florida. One-third of the Gulf’s federal waters remains closed to fishing and the toll of dead and injured birds and marine animals is climbing.

BP’s latest containment effort, which follows a series of earlier failed attempts, involved placing a containment cap with a seal on a deep-sea pipe from which the oil is gushing.

But the ultimate solution to the leak lies in the drilling of a relief well and that won’t be completed before August.

(Additional reporting by Deborah Zabarenko, Ayesha Rascoe, Jeff Mason, and Ross Colvin in Washington, Joanne Frearson, Harpreet Bhal and Natalie Harrison in London, Pascal Fletcher in Miami, Ernest Scheyder, Braden Reddall, Walden Siew, Doris Frankel and Ryan Vlastelica, in New York and Kristen Hays in Houston; writing by Ross Colvin; editing by Will Dunham and Frances Kerry)

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