BP chief executive Tony Hayward bracing himself to face Capitol Hill over Gulf of Mexico disaster

FOR most people, a visit to the United States Capitol, the iconic neoclassical landmark that houses the US Congress, is a once-in-a-lifetime opportunity. But when Tony Hayward makes the picturesque journey to Capitol Hill on Thursday, he won't be concentrating on the sights of Washington DC.

The chief executive of BP will be hoping that this is one memory he can quickly forget as prepares to face a congressional committee investigating the Deepwater Horizon disaster in the Gulf of Mexico.

Having become America's "most hated" man in the matter of just two months, Hayward knows his interrogators will be baying for blood.

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He has already received death threats since the explosion on the Deepwater rig on 20 April and he expects little let-up in the pressure after US President Barack Obama last week intensified his war of words against the oil major.

With the environmental disaster threatening to overshadow his term in office, Obama joined the chorus of personal criticism against Hayward in the US and called for him to resign.

BP's chairman Carl-Henric Svanberg is in America this week seeking to smooth relations ahead of Hayward's public appearance on Thursday. The 57-year-old Swede has been dispatched in an attempt to repair what even BP insiders admit has been a public relations disaster across the Atlantic, with Hayward's sang-froid sitting ill with American environmentalists, business owners and workers who risk losing their livelihood as a result of the oil spill.

But even if Svanberg's talks with Obama succeed in relieving some of the president's ire, Hayward knows full well that his public appearance before Congress is likely to be bloody.

His advisers will have been working non-stop over the weekend to coach the 53-year-old Reading-born chief executive after his matter-of-fact but insensitive comments like "I'd like my life back" and "We shall fight them on the beaches" only served to intensify public outrage across the pond.

With calls for his resignation growing louder by the day, Hayward knows that this is likely to be his last chance to defend what until April had been a fairly glittering career at the oil giant.

But is hasn't just been Hayward's future that has increasingly been called into question. Concerns about BP's financial situation and a potential takeover bid reached fever pitch last Thursday when BP shares hit their lowest level since 1997 at one point in London after crashing to a 14-year low overnight on Wednesday in New York.

As the war of words in the US intensified, British business leaders leapt to Hayward's defence on this side of the Atlantic, concerned at the damaging effect the Obama administration's rhetoric was having on the oil firm's share price.

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Having already had its credit rating slashed from AA-plus to AA by Fitch on 3 June, the cost of insuring BP against a potential debt default reached a level at one point on Thursday that was as if it had junk status.

John Napier, chairman of the insurer RSA, came out all guns blazing, saying in an open letter to Obama: "Your comments towards BP and its CEO... are coming across as somewhat prejudicial and personal. There is no doubt that BP, as a UK plc, is totally committed to do everything possible to contain the oil leak and meet all its obligations in the USA. The existing CEO is the best person to deliver that effort."

His sentiments were subsequently echoed by Standard Life Investments, which said it was "fully supportive of Tony Hayward and his management team".

Richard Lambert, director general of the CBI, also weighed in, warning: "It's a matter of concern when politicians get heavily involved in business in this way."

Boris Johnson, mayor of London, pushed Prime Minister David Cameron to enter the fray when he warned that the collapse in BP's share price on Thursday morning was a matter of "national concern" given the enormous exposure of UK pensioners to BP. BP's dividend accounts for 1 in every 7 paid out to pension funds.

Johnson said: "When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves."

Cameron is due to meet Obama this week. While the Prime Minister's reticence in getting involved has drawn criticism from some corners – Lord Digby Jones accused him of failing to stand up for Britain – others argue that he would be better not to embark upon a transatlantic diplomatic war and make his arguments to the US president in private. In particular, City analysts are keen for Cameron to highlight the not insignificant exposure of US pension funds to BP's shares. It is estimated that 25 per cent of American funds are exposed to the oil firm.

In the UK, Joanne Segars, chief executive of the National Association of Pension Funds, has attempted to soothe market jitters by insisting that BP's difficulties "should not have an immediate or serious impact on those saving into a pension, or on those who have retired".

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Segars says: "Over the last few years pension funds have shifted out of UK shares and the average fund is now spread across many companies and many types of global asset. We estimate that UK pension funds' exposure to BP is about 1.5 per cent of total assets, which are in excess of 800 billion."

However, she did admit that pension funds would be concerned if the oil leak threatened to harm BP's longer-term financial prospects and, crucially, future dividends. "BP's priority should be to get this crisis under control to protect the long-term strength of the company," she added.

Although the clean-up has so far put a 1bn dent in BP's finances, the City remains confident at present that it can take the hit – particularly as the cost is likely to be spread over several years.

Analysts at Standard Chartered say the bill could reach as much as $40bn (27bn) but insist it will have a "limited impact on cash flow".

Profits at BP are expected to hit around $20bn this year and the company insists that with a strong cash position and relatively low levels of debt it remains on top of the situation. On Thursday, amid a 12 per cent fall in its share price, it insisted that it was "not aware of any reason which justifies this share price movement".

However, the City is less certain what hand the company will play when it comes to the dividend. BP's full-year dividend, if it is maintained, would cost the firm around $10.5bn, which analysts say is within its capabilities. According to Citigroup, BP has an operating cash flow of $31.6bn. Although the clean-up operation plus a $10.5bn dividend pay-out would raid the larder, Citigroup estimates BP still has $1.2bn of cash to play with this year. Next year it expects the situation to improve substantially, forecasting free cash flow after dividend of $11.6bn, rising to $12.6bn in 2012.

But with the next quarterly dividend payment due next week, the firm has come under intense political pressure in the US to suspend payments while the environmental crisis is ongoing. Next week's quarterly dividend pay-out would cost what analysts describe as an "easily affordable" $2.5bn.

Nevertheless, there is a growing school of thought in the Square Mile that BP may suspend that payment in order to avoid the further PR disaster that would inevitably arise from a pay-out.

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David Buik, of BGC Partners, believes BP may bow to political pressure on this occasion but double payments later in the year in order to calm investor nerves.

Richard Hunter of Hargreaves Lansdown stockbrokers agrees that it would be difficult for BP to proceed with its quarterly dividend payment on 21 June. But he insists the decision to suspend the payment would "not be a financial one".

Hayward appeared to suggest next week's pay-out cannot be assured when he told the Wall Street Journal on Friday: "We are considering all options on the dividend. But no decision has been made."

Rumours circulated in the City on Friday that the firm was likely to place the $2.5bn in an account that would not be accessed until the full bill for the clean-up had been determined. The BP board will meet tomorrow to make a decision on its dividend payments.

Although talk of a potential takeover has died down in recent days, some analysts believe BP would still be an attractive target for expansionist energy firms such as PetroChina. Standard Chartered said in a research note last week that BP could transform PetroChina into a major global player even if clean-up costs reached as much as $40bn. However, they acknowledged that this scenario was hypothetical, saying: "We expect a full dose of scepticism on this as a real-world proposition."

Other analysts suggest that although BP's depressed market value makes it an attractive takeover target in theory, bidders are likely to be put off by regulatory and anti-trust issues, plus the legal fall-out from the Gulf of Mexico crisis.

What analysts do agree on, however, is BP's share price is likely to take a further hammering unless efforts to stem the oil flow take a significant turn for the better. At one stage BP lost half its value since 20 April, when its shares traded at 665.4p, giving it a market capitalisation of 125bn. On Friday the shares closed at 391.9p.

As analysts at Killik & Co conclude: "Until the flow of hydrocarbons is stemmed and we have more of an idea of the potential cost, the shares will remain very volatile."