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International Energy ETF Endures BP Pounding


Shares of BP (BP), the third-largest European oil company by market value, are lower by 5% on volume that is roughly 10 times the daily average after U.S. District Judge Carl Barbier ruled the company acted with gross negligence in the 2010 Gulf of Mexico oil spill.

Barbier’s decision on BP’s role in the Deepwater Horizon rig explosion and spill, the largest oil spill in U.S. history, “means BP faces as much as $18 billion in civil penalties under the U.S. Clean Water Act for pollution in the Gulf of Mexico, far more than if the judge had found the company simply negligent,” reports Daniel Gilbert for the Wall Street Journal.

If BP is forced to pay $18 billion, that would amount to almost 13% of the company’s market value at this writing.

While the news is clearly weighing on the British oil giant’s shares, at least one international energy ETF with a substantial weight to BP is proving somewhat steady Thursday. Although volume in the fund is light, the SPDR S&P International Energy Sector ETF (IPW) is off just a third of a percent despite an almost 10% weight to BP.

That makes BP IPW’s third-largest holding following a combined 17% weight to two Royal Dutch Shell (RDS-A) securities and a 10.3% allocation to France’s Total (TOT).

IPW’s durability in the face of trying circumstances has been apparent in recent weeks. The ETF has traded modestly higher over the past month despite sharp declines for the United States Brent Oil Fund (BNO) and the United States Oil Fund (USO) . [Oil ETFs Tumble]

Interestingly, IPW’s Thursday showing is noticeably better than that of the iShares Global Energy ETF (IXC) . IXC, which allocates 4.5% to BP, is off nearly 1% today.

Compelling valuations and a tempting dividend yield could continue to support IPW in the face of ongoing BP controversy.

On a book value basis, or a company’s value after stripping out its liabilities, the MSCI World Energy Index recently closed at a 15% discount to the MSCI World Index of developed markets. The gap compared with an average premium of 2.3 percent since 2000, reported David Wilson for Bloomberg last month.

BP, Shell and Total, a combined 37% of IPW’s weight, all traded at substantial book value discounts to U.S. rivals Exxon Mobil (XOM) and Chevron (CVX). [Bargains With Global Oil ETFs]

IPW’s dividend yield of 3.13% is well above the 1.72% found on the Energy Select Sector SPDR (XLE) .

SPDR S&P International Energy Sector ETF