As the toxic sheen engulfing the waters off the coast of Louisiana, Alabama and Florida continues to spread, so do fears for the health of the main culprit for the unprecedented disaster—and those who rely on its ability to provide returns.
British Petroleum, the largest commercial oil producer by volume, is about as blue-chip a stock as one can find. It is by far Britain’s largest industrial brand and is a core holding for both retail and institutional investors. Pension funds in particular depend on the energy stalwart’s dividends to help cover their liabilities.
But since the Deepwater Horizon rig disappeared into the Gulf of Mexico, the company’s stock has lost one-third of its value, or US$60 billion. On Tuesday, it lost $17.5 billion alone as reports of its failed “top kill” attempt to plug the leak were confirmed.
The estimate for stemming the flow of oil has now been pushed back by at least two months—bad news for BP, as well as the millions of pensioners in the U.K. and abroad whose pension funds have significant exposure to the stock.
Speaking to the U.K.’s Express newspaper, chief executive of Capital Asset Management Alan Smith said the situation has the potential to cut the firm’s value by half, which could lead to a fall in pension values of 1% or 2%. Such a drop would translate into £300 to £400 less for a pensioner receiving £15,000 a year.
More ominously, some analysts now consider the failure of BP as a possible scenario and rate the firm as a takeover target.
BP chief executive Tony Hayward has done little to help the situation with remarks in May that the spill was “tiny” in relation to the Gulf and again last week when he said he wanted the disaster over because “I’d like my life back.”
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