Will Gulf oil spill cleanup suffer if BP makes dividend payments?
President Obama wants BP to set aside more money for its Gulf oil spill liabilities. Rising estimates of cleanup costs are putting financial pressure on the firm.
(Page 2 of 2)
Oil companies' steady stream of dividend income is valued by millions of retirees. In Britain, in particular, about $1 in every $8 of dividend income from Britain's FTSE 100 stock index comes from BP. (US shareholders, too, are reaping $4 billion a year in BP payouts, by one estimate.)Skip to next paragraph
Subscribe Today to the Monitor
The dividend pressure from Obama and Congress has become a source of London-Washington tension.
A dividend cut could push down BP's already-battered share price, as investors wonder when dividends will come back – and perhaps even whether their suspension signals deeper long-term trouble as the firm wrestles with the oil-spill fallout.
Some oil industry analysts have already wondered aloud about whether BP could be forced into bankruptcy or become a takeover target, although many say the firm is financially strong enough to weather the crisis.
Mounting financial pressures
Still, politics isn't the only reason for BP to be evaluating its dividend policy.
Even from a strictly financial analysis, the rising costs of the spill mean that "dividend risks are clearly rising," according to a recent report by analysts at Credit Suisse. Translation: The firm can afford to keep its dividend in place for now, but it won't necessarily be easy for the firm to balance the cleanup costs, investments in new production, and its level of debt.
The spill could cost BP nearly $40 billion, Credit Suisse estimated, with perhaps $14 billion in damage claims and $23 billion in cleanup. "This would absorb three years of BP's free cashflow" after paying for dividends and for capital spending on new production, the report said.
That's a lot of money – and it's not clear what the final tally will really be. For now, BP has spent $1.6 billion on the Gulf crisis since the April 20 rig explosion. The ultimate tab will hinge on a range of factors, which could pin it above or below that $40 billion forecast.
- BP oil spill: with escrow plan, Obama races to claim BP's money
- Obama White House still trying to get BP oil spill right
- Why BP wants to stop the Gulf oil spill as much as Obama