BP: cleanup costs for oil spill will be 'severe'
June 4, 2010 Hayward and other senior BP PLC executives struck a penitent
note in their first comprehensive update to shareholders since the
explosion at the Deepwater Horizon rig six weeks ago, stressing
their commitment to rebuilding BP's tarnished reputation, improving
safety measures and restoring the damaged Gulf coast.
"We will meet our obligations both as a responsible company and
also as a necessary step to rebuilding trust in BP as a long term
member of the business communities in the US and around the
world," said BP Chairman Carl-Henric Svanberg. "This is in the
interest of all our stakeholders."
The company, which announced it was creating a stand-alone
organization to manage its long-term response once the spill is
over, received a warmer response on the audio webcast than it has
in many public forums in recent weeks.
There were no overtly hostile questions and no discussion about
the shares sell-off in recent weeks that has wiped some $70 billion
off the value of the company, or the validity of Hayward's position
after a number of gaffes by the CEO - one British-based analyst
even congratulated him on his handling of the situation.
Hayward said it was only fair that he take on a lot of the
criticism and credited his thick British skin for coping with it.
"It's right that I should be the lightning rod," he said.
"I'm so far unscathed."
"Sticks and stones can break my bones, but words can never hurt
me, or however the phrase goes," he added.
Shares in the company dropped during the conference call.
Investors may have wanted an immediate commitment from BP to pay
out planned dividends despite objections from some U.S. lawmakers
who argue against handing out billions to shareholders at a time
when the complete cost of the oil spill is unknown.
The stock was 3.8 percent lower at $37.78 in morning trading on
the New York Stock Exchange.
BP faces a tough balancing act, caught between worried investors
and an increasingly angry U.S. government and public. It is a key
stock for millions of investors and pension fund savers, with BP
accounting for about 6 percent of all the UK equity money held by
defined benefit pension schemes. BP's share price also has a major
bearing on the wider FTSE 100 Index, accounting for 7 percent of
the index.
The company reported Friday that some oil was flowing into a
containment system after it cut a pipe and placed a cap over the
broken Deepwater Horizon well, but it was too early to tell if the
latest attempt would ultimately be successful.
Hayward said he expects containment and cleanup costs to
continue at current rates - they have topped $1 billion pounds
since the rig explosion that killed 11 workers six weeks ago -
until well after the company stops the flow of oil.
If the company succeeds in stopping the flow of oil by August,
when BP hopes to have relief wells operational, the company would
be able to pay the majority of those costs by the end of this year.
Costs arising from potential lawsuits and fines would be on top of
that, Hayward said.
He added that the moratorium on new drilling in the Gulf imposed
by the U.S. government because of the spill could impact BP's
production by 50,000 barrels of oil per day in 2011 and up to
75,000 barrels per day in 2015.
However, he highlighted BP's strong balance sheet, saying the
company continued to generate strong cash flows from other
operations.
BP earned more than $16 billion last year. It has a generous
annual dividend yield of 8.9 percent, compared with 2.8 percent for
Exxon Mobil and 6.5 percent for Royal Dutch Shell.
Svanberg appeared to take the political ramifications of the
dividend into account, saying that the board "understood the
importance" of the payout to shareholders, while stressing the
company's priority was to deal with the oil spill.
He indicated the company would decide on the dividend closer to
its next quarterly earnings report on July 27 when it is due to
announce its next shareholder dividend. It is scheduled to pay out
a previously announced dividend on June 22.
"All factors will be considered and the decision taken in the
long term interests of the shareholders," Svanberg said.