HEARD ON THE STREET: BP Seeks Cure In A Shrink

By Liam Denning and Matthew Curtin A DOW JONES COLUMN There's little love lost between BP PLC (BP, BP.LN) and the White House. But in announcing quarterly results and a new chief executive Tuesday, the oil major effectively co-opted one presidential election slogan. But do BP's efforts represent change its shareholders can believe in? BP's stock price has rallied 40% since its June nadir. But its market capitalization has still fallen by $46 billion relative to its peer group since disaster struck on April 20. The company announced a $32 billion cost provision Tuesday. The difference may reflect skepticism that BP's provision is big enough. The well isn't plugged yet, and BP does not assume potential liability for gross negligence. More ominously, the gap might represent a structural discount in the stock price reflecting BP's track record of accidents. Reassurance that BP can fix the safety issue will take time. But signs the company is considering structural changes are encouraging for investors. Outgoing CEO Tony Hayward says disposals of up to $30 billion should leave the company producing 3.5 million barrels of oil equivalent per day, back to 2003 levels. As an aside, Russia's importance in BP's production mix should rise, making Hayward's proposed move to TNK-BP (TNBP.RS) look less like Siberian exile. Most importantly, BP is building room to maneuver. JP Morgan calculates net debt might amount to just $2.1 billion by the end of 2011, against BP's target of $10 billion to $15 billion. The gap provides room to absorb further costs, resume dividend payments or invest in something the majors have long struggled with: growth. And as a smaller company with the freedom to reset shareholder payouts, BP has a better chance of delivering on this front. (Liam Denning joined The Wall Street Journal from the Financial Times, where he wrote for the Lex column. Previously, he was an investment banker at Goldman Sachs. He can be reached at 212-416-3618 or by email at liam.denning@wsj.com. Matthew Curtin has been a financial journalist since 1990, and has written on international finance and business for Dow Jones Newswires - from South Africa, Singapore and France - since 1994. He can be reached at +331 4017 1746 or by email: matthew.curtin@dowjones.com) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires July 27, 2010 12:34 ET (16:34 GMT)