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BP 'Unique' Buy, Should Suspend Dividend: Oppenheimer

A massive sell-off in BP shares triggered by the worst oil spill in US history has created "a unique investment opportunity" despite costs that could approach $60 billion, Oppenheimer said in a research note.

Veterinarians clean an oil covered brown pelican found off the Louisiana coast and affected by the BP Deepwater Horizon oil spill at the Fort Jackson Oiled Wildlife Rehabilitation Center.
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Veterinarians clean an oil covered brown pelican found off the Louisiana coast and affected by the BP Deepwater Horizon oil spill at the Fort Jackson Oiled Wildlife Rehabilitation Center.

BP ought to suspend its dividend despite the near-term damage it would cause to shareholders. "This painful but necessary action" would pave the way for the company to grow going forward.

"We believe the upside potential from current price levels is significantly greater than any further downside risk from the oil spill," Oppenheimer said in rating the stock an "outperform."

"We think the sell-off, which eroded 51 percent, or $98 billion, of BP's market capitalization since the platform explosion on April 20, has created a unique investment opportunity, especially for long-term investors," the firm said. "We think BP shares at current prices discount the worst-case scenario of more than $60 billion in potential financial damages and penalties, which, even if they materialize, are likely to be spread over several years, and, therefore, would not constrain the company financially."

Suspending the dividend would free up more than $10.5 billion annually that can be put towards the clean-up and associated costs.

Putting the dividend in a liability reserve fund would buttress the political and financial damage the company has seen from the spill. President Obama has requested an escrow fundto be used for the cleanup.

"We expect this disaster to have profound impact, not only on BP, but also on the oil industry, the Gulf region, government policies and US politics," Oppenheimer said.

Citigroup also weighed in on BP, rating the company a high-risk buy on estimates of a $40 billion hit from the spill.

BP's cash flow of $70 billion annually against just $25 billion in debt will allow the company to withstand the Gulf of Mexico spill storm, Citi said.

"The stock price will likely continue to whipsaw on speculation until the company can kill the leak, clean up the damage and give more certainty around the costs," Citi said. "However, we still believe the stock price discounts pessimistic cost outcomes rather than most likely case outcomes."