Oil giant BP was the biggest faller on Britain's blue-chip board on Thursday, as investors fretted that a U.S. government lawsuit may mean the cost of its oil spill will be far higher than earlier expected.
Legal experts have said that BP's $40 billion estimate for the cost of capping and cleaning up the oil leak, compensating those affected and paying penalties could double if the U.S. government took a hard line against the company and convinced a court that the company was grossly negligent.
BP and analysts have dismissed this possibility so far, but the harshly-worded lawsuit filed on Wednesday by the Department of Justice spooked investors.
"Just when it looked like BP had turned a corner and was beginning to move on from the Gulf oil spill, it's dealt another blow to its recovery efforts," Manoj Ladwa, senior trader at ETX Capital said.
BP was down 2.7 percent in morning trade in London, having closed down 1.3 percent in the U.S. overnight.
Investors expect BP to reinstate its dividend -- cut in the wake of the spill to help pay costs -- in early 2011. However, if the outlook for fines and penalties worsens, the level of dividend paid could be lower than some expect.
The lawsuit seeks damages from the well owners BP, Anadarko Petroleum Corp and Mitsui & Co Ltd unit MOEX, and well driller Transocean Ltd and its insurer QBE Underwriting/Lloyd's Syndicate 1036, part of Lloyds of London, for their roles in the Gulf of Mexico disaster.
However, London-based analysts were not fretting over the Obama administration's move, believing that the company has made provisions for any damages connected to what was the worst offshore oil spill in U.S. history.
"This action comes as no surprise and at this stage BP appears to have made adequate provisions to cover likely costs providing gross negligence is not proven," say brokers at Oriel Securities, who have a "buy" rating on the stock.
Reuters reported earlier in December that BP's oil spill costs could double from the company's $40 billion estimate if the Department of Justice find BP was "grossly negligent" in the run-up to the disaster.