BP braced for further blow as shares slump to a 14-year low

EMBATTLED oil major BP was licking fresh wounds last night as its shares slumped to a 14-year low amid short-term funding fears.

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As much as 5.5 billion was wiped off the value of the company at one stage, with shares plunging 9 per cent to below 300p – levels not seen since August 1996. The stock later closed off 6.4 per cent at 304.6p.

Investor confidence was further rocked by reports of a potential hurricane in the Gulf of Mexico next week that could hamper the group's oil spillage response operation.

Despite assurances over measures to improve the capture of oil and progress on relief wells to kill the flow, BP admitted clean-up costs had now hit $2.35 billion (1.6bn).

Insuring the company's debt for five years now costs 5.85 per cent – meaning an investor holding 10 million in BP debt must pay 585,000 to protect itself against potential default, according to financial research firm Markit.

The cost of insuring for one year is higher at 7.25 per cent – a clear signal of market worries over the immediate costs faced by the oil giant, which would make any debt-funding move far more expensive.

In a note, analysts at Nomura suggested a $10bn funding injection from a major investor such as a Middle East wealth fund could shore up market doubts at a time when debt funding is dear and asset sales may take time.

The move would be similar to that made by Barclays at the height of the credit crisis in 2008, when the bank raised emergency capital from Abu Dhabi and Qatar to avoid taking taxpayer cash.

Nomura said pressure was mounting on the oil major to improve its liquidity position to "assure sufficient fund to cap the well and meet 'fat tail' scenarios around near-term expenses".

BP has already scrapped its dividend payouts for three quarters to bolster its finances and amid political pressure from the US Obama administration. It has set up a $20bn fund to meet spill- related claims.

The group insists it is in a strong financial position to tackle the spill – generating $30bn in cash a year, with $10bn in committed or stand-by banking facilities, planned asset sales amounting to a similar sum and some $5bn saved from suspending the dividend.

BP shares have been punished since the Deepwater Horizon oil rig exploded on 20 April, killing 11 workers. More than 60bn has been wiped from the stock market value of the business.

Chief executive Tony Hayward officially handed over day-to-day control of the Gulf of Mexico crisis to BP board director Bob Dudley this week as the group set up a new division to manage the spill.

BP was reportedly planning a mammoth fundraising programme to shore up its finances as the clean-up bill soars.

The group – which has seen its debt downgraded to near-junk status by two ratings agencies in recent weeks – has refused to comment on potential bond issues or any refinancing of existing debts.

Hayward is said to have told staff earlier this week that the operating results due out next month will be "very strong", although he recognised the group's need to sell assets and show balance sheet strength to deal with the liabilities.

BP's latest share price slide contributed to the wider market retreat, with the FTSE 100 index closing down 1.1 per cent at 5,046.47.

CMC Markets analyst Michael Hewson said: "BP remains in the spotlight amid concerns that the company may have to sell assets to cover the costs of the oil spill. With bad weather closing in, it seems that BP continues to lurch from one crisis to another."

Work on the drilling of relief wells, designed to stop the leak, is continuing.