The City has welcomed BP's deal with President Obama over the Gulf of Mexico oil slick, sending the company's shares to the top of the FTSE 100 leaderboard.
BP shares rose 23.5p, or 7%, to 360.6p in early trading, even though it has agreed not to make any dividend payments for the rest of 2010.
Analysts at Evolution Securities said that yesterday's White House meeting has finally given the market some much-needed clarity over the ongoing disaster, even though the $20bn (£13.5bn) which BP will put into a compensation fund may not be enough:
BP's package agreed with President Obama should cool the political heat and provide some degree of comfort to equity and bond markets, shareholders and businesses/residents in the Gulf of Mexico affected by the Deepwater Horizon accident.
The agreement to set up a US$20bn claims fund draws a line in the sand (of sorts). It doesn't cap BP's liabilities nor cover fines and penalties but does clarify how BP will settle legitimate claims and clean-up costs. However, it does come at the expense of the 1Q (due 21 June), 2Q and 3Q dividend payments. Organic capex is cut by 10% (US$2bn) in 2010 and 2011 and assets disposals are being accelerated to raise US$10bn (incremental US$8bn).
Today's share rise put £4.4bn back on BP's market capitalisation, making it worth £67.4bn (compared with over £122bn before the Deepwater Horizon rig exploded).
The deal with Obama does seem to have prompted analysts across the City to reassess BP's situation. Bank of America/Merrill Lynch cut their rating on the company to 'Neutral' from 'Buy', while Natixis reduced its price target for BP's shares from 480p to 440p.
Chancellor George Osborne also tried to ressure the public that BP's future is not in doubt, telling the Today programme that it is a "very strong company" which "we need to flourish in the future for all our sakes".
BP's shares could be volatile this afternoon when chief executive Tony Hayward appears before a congressional committee.
