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BP shares rise on US oil spill compensation deal

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As of 02:11 20 Aug 2018

BP shares have closed up almost 7% after it agreed to put $20bn (£13.5bn) in a fund to compensate victims of the Gulf of Mexico oil spill.

The increase halted falls that had led to the company's stock value halving in recent weeks.

Investors said BP's agreement with the White House had "removed some of the uncertainty" surrounding the company.

The rise comes despite the announcement that BP shareholders will not receive dividend payments this year.

The year's first dividend payment of $2.6bn was due on Monday, but has now been cancelled.

It is the first time that BP has withheld the dividend since World War II.

BBC business editor Robert Peston said the increase in BP's credit default swap (CDS) premium - the cost of insuring its debt - was an important factor in the board's decision to suspend the dividend.

The company also said it would be selling about $10bn worth of "non-core" assets in order to give it more available funds.

'Losing money'

One UK shareholder, who said he would lose £600 in dividend payments on top of the declining value of his shares, told BBC News online he felt he had effectively been "robbed by Barack Obama".

"If I was in the US, I could claim compensation for loss of income caused by the spill. But as it is, I'm losing money because of the oil spill and no one's giving me a helpline to call," said pensioner Sandy Lamb from Chester.

"I am horrendously angry about this - we're being dragged into US politics... and David Cameron has done nothing for UK investors."

However, analysts were encouraged that the impact the disaster would have on BP was becoming clearer.

"The one thing investors hate is uncertainty," said Keith Bowman, equities analyst at Hargreaves Lansdown.

"A decision has been made on the dividend, and at least now we've got a few more numbers to work with."

Uncertainty remains

BP has agreed to pay $5bn into the fund this year, followed by quarterly payments of $1.25bn until the total $20bn is paid.

Analysts said that the compensation fund and initial clean-up costs would be easily affordable for BP, but the threat of legal action and significant fines meant it needed to conserve cash.

"The big issue is that nobody knows what the extent of BP's liabilities might be," warned Brian Tora, investment manager at JM Finn.

"BP is a huge company and it can certainly fund the cost of cleaning up the oil spill, but what the future holds is very difficult to tell."

So far BP estimates it has spent $1.6bn on containing and cleaning up the oil spill so far.

Standard Chartered warned last week that the total cost to the company, including legal costs, could top $40bn.

President Barack Obama has also said that BP's compensation costs may not be limited to the £20bn already planned for the fund, and individuals will still be able to sue the company.

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