BP WATCH: BP Debt Downgraded Again; US Shares Up

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC's (BP) U.S. shares edged higher Friday, capping an eventful week for the oil giant that investors felt lifted some of the uncertainty that had been weighing on the shares. BP's American depositary shares rose 0.2% to $31.76. Meanwhile, the cost to insure its debt was down slightly from Thursday and option activity was quieter than in recent days, with the volume in bearish and bullish positions nearly even. The steadying of the shares came despite a cut to BP's credit rating by Moody's Investors Service. This week may prove to have been an important turning point for embattled BP: The company took steps to work with the Obama administration, increased its rate of capture at the site of the oil spill, cut its dividend and set aside $20 billion for a claims-paying fund. Many issues remain. That was highlighted Thursday, when BP Chief Executive Tony Hayward received a daylong grilling from angry and frustrated lawmakers at a congressional hearing. Still, with this week's developments now behind the company, investors are hopeful that most of the fearful sellers are already out of the stock and that it may even have bottomed, or at least be near a bottom. BP's U.S. shares are now down 47% from April 20, the day the Deepwater Horizon rig exploded. The stock's lowest point since then came last week, on June 9, when it reached an intraday low of $29. While BP is down more than 6% for this week, it is up nearly 10% from that June 9 low, and investors are hoping the gains from there will continue. The market's reaction to the oil spill "is well overdone," Bruce Lanni, a portfolio strategist at NCPI, told clients in a Friday note. "BP is attractive at current levels," he added, forecasting the stock will trade between $30 and $35 over the next one to two months. He also said the stock price should move up toward the $40 to $50 range when the relief well is completed, as long as it's successful. Investors were encouraged Friday by a report that responders at the site of the oil spill captured some 25,000 barrels of oil on Thursday. The increased rate of capture--about 10,000 barrels of oil more than the typical figure for last week--puts BP on track to meet its plan to catch 53,000 barrels of oil by the end of the month. In addition, BP's standby loan has now risen to $7 billion as more banks join the group of lenders supporting the company against possible claims related to the oil spill in the Gulf of Mexico, a person familiar with the situation said Friday. However, the stock did slip 0.6% in London, as Friday was the first time U.K. investors could react not only to the Moody's rating cut but to S&P's Thursday afternoon downgrade. U.S. investors had already reacted to the S&P downgrade Thursday, when the stock slipped 0.4%. In addition, worries remain over the extent of BP's liabilities. Louisiana Treasurer John Kennedy told Dow Jones Newswires that BP's $20 billion escrow fund "is a good start," but may not be enough to compensate the affected individuals and businesses. "I hope damages don't reach that level, but everything I see right now leads me to believe they will," Kennedy said. Amid those concerns but with the stock at nearly half its price from before the spill, investors are struggling with the decision over whether BP still has too many risks or could be a good buying opportunity at its current valuation. Bill Quinn, chairman of American Beacon Advisors, said there were differences of opinion about BP among the firm's four subadvisers. Some have reduced their positions since the oil spill, while others are holding on, he said, noting that the net result is only a "slight" reduction in the firm's BP position. The subadvisers who still hold it "think the company is a very strong, viable company, with strong cash flows," Quinn said. "Although this is not something you want to go through, at the valuations they're at now, they generally think it's a good investment. As you start to remove some level of uncertainty, that's only going to help." -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; donna.yesalavich@dowjones.com (Kelly Nolan contributed to this article.) (END) Dow Jones Newswires June 18, 2010 16:30 ET (20:30 GMT)