BP shares rebound after company cancels dividend, sets $20 billion compensation fund

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BP shares rebound after dividend dropped

Shares of BP PLC rebounded from an early slide and rose Wednesday after the company agreed to set up a $20 billion escrow fund to compensate victims of the Gulf oil spill.

BP also announced it would suspend dividends for the rest of the year. Lawmakers had pressed the company to stop payments to shareholders while the oil spill crippled fishing and tourism businesses along the Gulf Coast.

The dividend announced for the first quarter — due to be paid next week — was 86 cents per American depositary share, which amounted to $2.6 billion. Company officials said they would consider reviving the dividend early next year.

BP shares had dipped near a 14-year low Wednesday morning. They rallied at midday and closed up 45 cents at $31.85.

After meeting with top BP officials at the White House, President Barack Obama announced on Wednesday that the oil giant has agreed to set aside an initial $20 billion to pay the victims of the oil spill, calling it “an important step toward making the people of the Gulf Coast whole again.”

BP shares fell as low as $29.58 in morning trading before swinging up again. They closed at $60.48 on April 20, just hours before the BP-operating rig Deepwater Horizon exploded and sank in about a mile of water off the Louisiana coast, touching off the worst oil spill in U.S. history.

Uncertainty over BP’s liability for the cleanup and damage has weighed heavily on the stock.

Gordon Gray, an analyst for Collins Stewart, said Wednesday that the battered shares were probably a good value but carried high risk. He said U.S. institutional investors were likely dumping shares to avoid holding big stakes in a company that is the object of so much public anger.

Jason D. Gammel, an analyst with Macquarie Research, said BP’s ultimate liability wouldn’t change by the creation of an escrow fund.

“We think the company was going to make good on its promise to pay all legitimate claims, but (the fund) gives some assurance to people on the receiving end,” he said.

Gammel said BP shares have fallen more than the company’s likely liability would warrant, but with so much uncertainty surrounding the eventual costs, “the news flow will prevent the stock from appreciating any more” than the broader market.