By Eduard Gismatulli
BP SHARES last night rebounded the most in 19 months and the cost of insuring the company against default fell after an agreement to phase in payments to a $US20 billion ($A23.2 billion) fund to compensate victims of the worst oil spill in US history.
BP scrapped dividends and pledged asset sales to meet President Barack Obama's demand to set up the fund in response to the Gulf of Mexico oil spill.
The shares have slumped 45 per cent since the Deepwater Horizon rig exploded on April 20, wiping about £55 billion ($A94 billion) off the value of the London-based company.
''It brings some clarity, but obviously we still don't know whether $US20 billion will be enough or whether the company will need more,'' said Colin Morton, of Rensburg Fund Management in Leeds. ''If this is the final cost, it's more than adequately reflected in the price.''
BP chief executive Tony Hayward, who was due to testify before Congress last night, said in prepared testimony that he was ''deeply sorry'' for the explosion and spill.
The company chairman, Carl-Henric Svanberg, met Mr Obama at the White House yesterday and agreed on payments over four years to finance an independent body to settle claims resulting from the damaged oil well.
BP shares jumped as much 9.7 per cent, the biggest intraday gain since November 2008, to trade at 361.25 pence in London last night. On Wednesday, they fell 1.5 per cent to 337p, the lowest since April 1997.
Halting the dividend, reducing investments in drilling, and selling oil and gas fields would ensure the company's financial stability, chief financial officer Byron Grote said yesterday.
The deal to phase payments into the fund ''allows us to stage our injections in a way that I hope now provides comfort to debt and equity markets'', Mr Grote said.
''A line has been drawn,'' said Manoj Ladwa, a London-based senior trader at ETX Capital.
''It's likely that we are going to see less of the aggressive rhetoric that we saw out of the US administration.''
The agreement to cut three-quarters of dividend payments and set up the fund removed BP from a four-hour stint among companies that the bond market labels distressed.
BP's bonds rose, with the spread on its €1 billion of 4.5 per cent notes due November 2012 narrowing to 555 basis points from 696 basis points on Wednesday.
The cost of protecting the company's debt against default for one year tumbled 461.5 basis points to 535.5, after having climbed as high as 1075 on Wednesday.
BLOOMBERG