BP Plc, struggling to control its gushing oil well in the Gulf of Mexico, should suspend its annual dividend until cleanup and liability costs are determined, two U.S. senators said.
A payout would be “unfathomable” until the obligations are tallied, Democratic Senators Ron Wyden of Oregon and Charles Schumer of New York said yesterday in a letter to BP Chief Executive Officer Tony Hayward. The company has enough cash flow to keep a 56-cent annual dividend, analysts including Jason Kenney at ING Wholesale Banking said.
Oil began flowing from the well after an April 20 explosion aboard the Deepwater Horizon drilling rig, which BP leased from Transocean Ltd. The well is leaking as many as 19,000 barrels a day, some of which is washing up on the shores of Louisiana and U.S. Gulf Coast states. The explosion killed 11 rig workers.
“We find it unfathomable that BP would pay out a dividend to shareholders before the total cost of BP’s oil spill clean-up is estimated,” the senators wrote. Victims’ families and businesses damaged by the oil “deserve to know that BP will fulfill its obligations to them before its shareholders.”
BP will pledge this week to maintain the dividend, the Times of London reported yesterday without citing a source. BP spokeswoman Sheila Williams declined to comment on the report. The company paid $10.5 billion in dividends last year, according to its annual report.
An unchanged quarterly dividend of 14 cents a share over the next year would put the ratio of payments to the current share price at 9.6 percent. That would be the highest yield among 18 of BP’s peers, according to data compiled by Bloomberg.
Peter Hitchens, an analyst at Panmure Gordon & Co. in London, and Gordon Gray, an analyst at Collins Stewart Plc, said yesterday that the strength of BP’s balance sheet will let it maintain dividend payments. The company is scheduled to announce its second-quarter dividend on July 27.
Proceeding with a dividend will “will make it much more difficult to repay the U.S. government and American communities that are working around the clock to stem the damage caused by this devastating oil spill,” the senators said in a statement.
Mark Salt, a spokesman for BP, declined to comment on the senators’ letter.
Lawmakers have few options to influence BP on its dividend, said Kenney at ING Wholesale Banking in Edinburgh. BP has enough cash to protect dividends and even boost the payout next year, Kenney said in an e-mail.
“Our own view is that the dividend remains safe at BP,” Kenney said. Even under a “worst-case scenario” for Gulf of Mexico costs, “we see BP’s cash outlook as more than capable of maintaining dividends this year, and potentially even supporting growth in the dividend next year.”
BP, which last year had $27 billion in cash flow from operating activities, said on June 1 it had spent $990 million on its response to stop the gusher 5,000 feet below the surface and remove spilled oil. BP has plunged 33 percent in London trading since the Deepwater Horizon rig exploded, wiping out more than 40 billion pounds ($58 billion) of company value.
The company’s shares today rose 13.75 pence, or 3.2 percent, to 443.5 pence as of 8:50 a.m. in London.
A group of 18 Democratic lawmakers that included Byron Dorgan, a North Dakota Democrat, last month asked U.S. Attorney General Eric Holder to investigate a proposed $1 billion dividend by Transocean, the rig’s owner. Any decision by BP to move ahead with its dividend now “would be even more troubling,” Schumer and Wyden said.
Dorgan said he has yet to receive an answer from Holder. The U.S. has asked a federal judge to reject Transocean’s bid to use a 159-year-old law to cap its liability at $27 million for environmental claims tied to the spill.
“Paying a dividend at a time like this makes it seem like this is kind of a normal time,” Dorgan said of BP in an interview. “This is not normal. They’d be wise to suspend that dividend.”