Investors Boost BP's Stock Ahead of Earnings -- and CEO Change?

BP's Tony HaywardInvestors got an early jump on BP's (BP) earnings announcement, sending the stock about 4% higher Monday in a positive reaction to the oil giant's anticipated ouster of CEO Tony Hayward in favor of Bob Dudley, head of BP's Gulf Coast Restoration Organization.

Analysts expect BP to report second-quarter earnings 48% higher than a year ago, thanks mainly to 40% higher oil prices than during the same period last year. BP shares gained $1.44 to reach $38.30 in New York trading on the anticipated positive earnings news and speculation about CEO Hayward's departure, which gained steam throughout the day even as BP issued a statement saying it had made "no final decision" on management changes. Shares went as high as $39 in morning trading. By afternoon, news reports said Hayward had agreed to leave his CEO post in October to take a job with a BP joint venture in Russia.

Another round of euphoric buying could take place if BP officially announces Hayward's departure ahead of, or during its earnings report early Tuesday morning.

A Steady Comeback Since June

Paul Mecray, managing director of Tower Bridge Advisors, says the stock's rise was in anticipation "that Tony Hayward will be resigning and successor Bob Dudley, who is an American, will improve credibility for the company and perhaps even permit them to continue operating major projects in the U.S. that they might otherwise have been forced to divest." The distrust toward BP is so strong in the Gulf and among Obama administration officials that some believe BP may be banned from continuing some operations in the U.S. once the investigation into the April 20 rig explosion is complete.

In spite of the bad feelings toward BP in the U.S., its shares have been making a steady comeback ever since the company placed Dudley in charge of its Gulf operations on June 23. The stock has rebounded 35% over the last month, climbing from $29.67 when Dudley was appointed, to $36.86 as of the July 23 close. Even with this recovery, as of Friday, BP shares were still selling at a 33% discount since the start of the year.

Investors may be willing to buy BP now because the company has made other positive moves since Dudley took over the cleanup operation. First, it finally capped and controlled the leaking Deepwater Horizon oil well on July 15. And although threatening weather forced a temporary suspension of the drilling of two relief wells that can stop the leak completely, BP is very close to completing the first well earlier than its original mid-August estimate. Analysts at Morningstar say stopping the leak completely could reduce potential civil penalties due to the oil spill from an estimated $46 billion to an estimated $22 billion.

How Will BP Pay for Its Damages Fund?

Investors and analysts have also been pleased with BP's move to sell $7 billion in assets to Apache (APA) to offset some of the Gulf cleanup costs -- now estimated at $4 billion and rising. Analysts still put the final costs for the spill at anywhere from $30 billion to $80 billion.

Mecray says most institutional investors will be awaiting to hear BP's estimate of its long-term costs for the oil spill cleanup and how much money the company is placing in reserve to pay for it. An update on the company's plans to pay for the $20 billion fund to reimburse those claiming damages from the spill will also be important. He says BP's free cash flow of about $30 billion "can in all likelihood pay any reasonable estimate of the cleanup costs without jeopardizing its viability as a company."
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