BP logo is seen at a fuel station of British oil company BP in St. Petersburg, October 18, 2012. REUTERS/Alexander Demianchuk/Files

By Andrew Callus

LONDON (Reuters) - If you had spent 10 pounds on BP shares on April 19, 2010, you would have just nine pounds now, including dividends. A poor investment, however you cut it, but also a remarkable recovery.

A day later an explosion at the Deepwater Horizon oil rig in the Gulf of Mexico would deal the United States its worst offshore oil spill, and BP would face the wrath of President Barack Obama himself for the death and destruction it caused.

Over the next two months, BP shares lost nearly two thirds of their value as the scale of the disaster threatened to sink the company.

Now some investors are sensing a better future than they had dared to hope.

The shares are flirting with post-spill highs, and are the second-best performer in the industry's top five behind Exxon Mobil since the start of the fourth quarter.

This may have something to do with the misfortunes of its peer group - a profit warning at Shell, cost overruns at Chevron, and worries about cashflow and production at Exxon - not to mention a price-enhancing share buyback program put in place last year, but it is still quite a turnaround in sentiment from 2010.

Then, the price of credit default swaps on BP bonds showed that even its solvency was in question, and Shell thought it might have to mount a rescue bid.

"It wasn't so much that we wanted to buy, more we thought the British government might ask us to step in," recalled Peter Voser, Shell's chief executive at the time, in a discussion with Reuters last year.

Now, in a change of fortunes, Shell has warned investors that it suffered its worst quarter since 2009 at the end of last year - albeit with little damage to its share price - while BP has reshaped itself.

BP sold $40 billion worth of prime assets to stay afloat - and spent $42.5 billion on the spill clean-up, fines and provisions for future costs.

In a note published on Friday downgrading profit forecasts across the sector, analysts at UBS predict BP's return on average capital employed (ROACE) this year will be 11 percent - on a par with Shell's.

BP shed a big chunk of its earning power to pay for the spill, but got prices that now look enviable as the industry cycle turns down. Rivals are now falling over each other to get assets on the block, at the risk of driving prices lower.

A leaner, meaner asset base has emerged, too. Meanwhile, having settled criminal proceedings, and two phases into a three-stage civil trial, an army of lawyers is working to push remaining spill fines and penalties way into the future. Barely a week goes by without a new legal challenge from the British group aimed at keeping a lid on its liabilities.

Explaining a bet it made on BP in a letter to investors last week, U.S. hedge fund manager David Einhorn's firm Greenlight Capital said investors were overlooking the company's improved return on capital in its core business and remained too focused on the spill fallout.

Greenlight said it had bought BP stock at an average price of $47.39 a share. It said the company had a net asset value of nearly $70 a share, even assuming it will have to pay out far more than it has provided for. BP's U.S.-listed stock traded at around $48.60 on Friday.

Deutsche Bank - one of 13 investment banks with a buy or outperform note on the stock, according to ThomsonReuters data, compared with three rating it underperform or sell - argues that the net present value of spill litigation has fallen.

"This is not to say that BP's position in the court trial has improved ... rather... it is likely to be multiple years before additional cash of any magnitude over and above that already agreed flows from the BP balance sheet," the bank said in a research note.

The note estimated cash outflows from future fines at less than $1 billion a year over the next decade.

That is only about two weeks' worth of capital spending at current rates.

RUSSIAN QUESTION

But numbers rarely tell the whole story, as analysts discovered to their cost in 2010 when they flagged repeated opportunities to buy BP shares - all the way down from 6 pounds to a low of less than 3 pounds.

Some investors and insiders privately question the direction and style of management since former chief executive Tony Hayward resigned, taking responsibility for the spill.

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