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BP: crisis play?

Thursday, Jun 03 2010 by
40

I have created this thread as a distinct place to discuss the merits (or otherwise) of the investment case for BP, in the light of the oil spill, so that the Transocean semi fire thread can be kept "purer" for discussion of technical matters relating to the accident.

This thread can be used for reporting news and discussion relating to BP (LON:BP.) as an investment.

My own basis for investing in BP during the crisis is that I did not feel it likely that the dividend would be severely impacted. Not for the first time, some analysts are suggesting that the dividend COULD be under threat today. Clearly there is a risk but the numbers do not currenty suggest to me that it is excessively high. A reasonably conservative view is that the total cost of this crisis: well repair, spill clean up, compensation, penalties etc could be in the $20-$30bn range - spread over, maybe, 5 years. That is the sort of figure that BP could absorb without a huge financial impact, given its cashflow.

Of course, there is a risk/probability that BP's US operations & revenue generation in the future could also be impacted... but if so, this could impact the earnings of other operators who also will have to bear higher regulatory/insurance costs. The end result could easily be a higher oil price which would counterbalance the cost impact.


Filed Under: Crisis, Gulf Of Mexico,

Disclaimer:  

The author may hold shares in this company, all opinions are his own and you should check any statements that appear factual and not rely on them before making an investment decision. The author is NOT a qualified analyst nor authorised to give investment advice. Whilst the author is a director of ShareSoc, all views expressed are entirely his own and not necessarily those of ShareSoc.


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BP p.l.c. (BP) is an integrated oil and gas company. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging. The Company operates in two business segments: Exploration and Production, and Refining and Marketing. Its Exploration and Production segment is responsible for its activities in oil and natural gas exploration, field development and production; midstream transportation, storage and processing, and the marketing and trading of natural gas, including liquefied natural gas, together with power and natural gas liquids. Its Refining and Marketing segment is responsible for the refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals products and related services to wholesale and retail customers. In July 2014, Rubis SCA acquired BP Plc's LPG business in Portugal. more »

Share Price (Full)
484.25p
Change
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P/E (fwd)
10.0
Yield (fwd)
4.8
Mkt Cap (£m)
91,546



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685 Posts on this Thread show/hide all

Fangorn 3rd Jun '10 5 of 685
3

I think Collins Stew's analyst is spot on. Unlike those two democratic twits saying a dividend should be suspended pending the final tallying of the cost. Ludicrous for the following reasons:

1) BP wont be bearing full responsibility. Mitsui and the other partner along with Tansocean and halliburton will no doubt be shouldering the costs.

2) The likely costs will be spread over a number of years.There's absolutely no way they'd be paid all upfront.

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xigris 4th Jun '10 6 of 685
1

Scenarios: The future for BP after the oil spill

from Reuters

Summary:

BP RUNS OUT OF CASH - UNLIKELY

BP BECOMES A TAKEOVER TARGET - UNLIKELY

CEO HAYWARD LOSES HIS JOB - UNLIKELY, FOR THE MOMENT

BP IS BARRED FROM DOING SOME BUSINESS IN THE U.S. AT LEAST TEMPORARILY - SOMEWHAT LIKELY

BP TO FACE FINES AND PENALTIES - LIKELY

BP TO FACE GROWTH HEADWINDS IN THE FUTURE - LIKELY

To me this appears to be one of the better pieces around. I'm optimistic about a near term return to above £5

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marben100 4th Jun '10 7 of 685
4

Ripples from the accident appear to be spreading globally: http://online.wsj.com/article/BT-CO-20100602-705799.html?mod=WSJ_World_MIDDLEHeadlinesAsia

MUMBAI (Dow Jones)--India's Oil & Natural Gas Corp. Ltd. (500312.BY) Wednesday said the Gulf of Mexico oil spill will be a "gamechanger" for the industry, and it may lead to tougher regulatory clearances and operating procedures.

"It is going to impact the industry's functioning worldwide in a major way," ONGC Chairman R.S. Sharma told reporters at a press conference.

He added that regulatory approvals for offshore and deepwater exploration projects in several countries will become more difficult.

It is notable that the oil price has bounced by around $5 and is back around $75 again. Wonder what the costs of developing the Santos basin (the best discovery for a long time) will now be?The water depth there is around 7,000' and the reservoir is 18,000' below that (and beneath a corrosive salt layer).

 

I have to hold my hands up to having exited my BP position this morning, for a modest loss (but with a view to re-entering later). There are some reports filtering out that the "cap" isn't working too well and the ROV pictures look pretty bad to my inexpert eye. I fear the market's reaction if these reports are confirmd and BP is struggling to make the "cap fit" and the rate of spill has actually worsened.

I also note that Obama has cancelled a planned trip to Indonesia, so that he can remain focussed on GoM issues. This story is getting bigger than BP.

 

Once I get some more clarity on what's happening at the wellhead and am comfortable that the news is fully "in the price", I may consider re-entering.

Cheers,

Mark

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flyinghorse 4th Jun '10 8 of 685
3

I would be wary of interpreting the ROV pictures with the cap on. Unless they have opened the valves in the LMRP cap package,expect the ROV footage  to look worse due to a choking effect. Once they open the LMRP STRING close to atmospheric (ie Separator conditions)the oil should take prefferential path to surface and capture there.

FH

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SW10Chap 4th Jun '10 9 of 685
3

In reply to marben100, post #3

BP's rules of thumb ...currently show a pre-tax annual operating profit sensitivity of +/- $430m per $1/bbl change in the Brent price

So these show an effect on pre-tax operating profits, a better figure than I originally had in mind.

If each $1/bbl fall in the Brent price removes $430m from the pre-tax operating profit, then to remove $6bn from that same operating profit would require a fall in the oil price of (6,000/430) = $14.

OK, I realize that these are very dirty numbers which could stand a lot of refinement, but in terms of ball-park figures that seems pretty revealing to me.

This chart shows that BP has tracked the oil price pretty consistently over the course of the year, which suggests - as one might expect - that BP survives such fluctuations without suffering as it is now.

Have I missed something fundamental?

SW10

 

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Mattybuoy 4th Jun '10 10 of 685
2

Not strictly BP related but if you look Nat Gas in the States was up 4% yesterday. This was apparently because Pres. Obama mentioned the words "natural gas" for the very first time in a reference to energy policy. I wonder why that might be?

Alongside ONGC, I continue to believe that this event will indeed be a game-changer for the oil industry, and as I said before am looking to play this by investing in those things that can readily substitute for US offshore oil. Nat gas being the socially respectable one and the oil sands the other ...

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marben100 4th Jun '10 11 of 685

Am listening to the conf call now... http://dl.groovygecko.net/anon.groovy/clients/bp/ir/gomupdate/webcast.html

BP chairman said exactly what I would have expected regarding dividend: "it will be kept under review". Such a statement shouldn't be politically provocative but equally shouldn't needlessly penalise shareholders.

I would hope that the immediate crisis will have been contained by the time of the next dividend announcement in July (fingers crossed!). The Board will consider then whether payment of a dividend predjudices its ability to meet its reasonable obligations in relation to the GoM, without predjudicing CAPEX either. If the well is under control & the spill contained, I would hope that the immediate political heat will be reduced by then.

Mattybuoy - as you probably know, I've "gone nuclear" (via uranium investment) ;0) and it looks like President Obama & the US are joining China & india in going down that route too.

Mark

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Mattybuoy 4th Jun '10 12 of 685

You can't put uranium in your truck ... :-)

I am not disagreeing. On the strategic level uranium is very attractive, but as a tactical response to this crisis things like government incentives for converting commercial vehicles to CNG are a better answer. In fact there is a bill passing through the system at the moment called something like the "Nat Gas Act", sponsored by buddies of Boone Pickens, which seeks to do precisely this, using the tax system.

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marben100 4th Jun '10 13 of 685

PS - thanks flyinghorse for clarifying my inexpert misinterpretation of the images I was seeing. However, the success or otherwise of the capping operation remains unclear - and it appears it will remain so until into the weekend at least.

I will remain out for now (unless the SP crashes) & monitor events closely.

One other general point of interest from the conf call was Haywood indicating that $60/bbl was required for current projects to remain profitable. Very supportive of the current oil price range, or higher, for the medium/longer term.

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SW10Chap 4th Jun '10 14 of 685
2

In reply to SW10Chap, post #9

Pleased to hear Hayward allude to the point that BP having always had to manage cash inflows and outflows because of oil price volatility.

On the subject of partners, he suggests that though they've made no calls on Anadarko, he expects them to share the burden.

SW10

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marben100 4th Jun '10 15 of 685

In reply to Mattybuoy, post #12

You can't put uranium in your truck ... :-)

You can put hydrogen in, though ;0)... so I'm also backing fuel cell technologies that can use either natural gas, biogas or hydrogen. What can go wrong with the governator on your side, with his hydrogen powered Hummer? (LOL :0)))

Equally, I also think your general strategy is interesting and could bear fruit but much remains to be proven in terms of economics (which is certainly also true of fuel cells).

Cheers,

Mark

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marben100 4th Jun '10 16 of 685

In reply to marben100, post #15

PS - certainly agree that cheap, quality, natgas resources look attractive now - and that will apply globally, not just in the US, with LNG providing a global price transmission mechanism (at least between major economies with LNG facilities). I am wary of shale gas, however, which is currently seen as a "panacea" and may prove to be a short-lived, temporary, boost.

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SW10Chap 4th Jun '10 17 of 685
4

Costs

Hayward seems to be saying that the costs could all be taken this year.

MMS involvement

On the mudweight issue, Hayward reiterates that all procedures were approved by the MMS 'in detail'.

Partners & contractors

There is an element of disguised feistiness in his responses to questions dealing with this subject, partners and contractors. My impression is very much that BP are going to be presenting their receipts to contractors and partners.

Edit

Specific quote as regards partners: "We would expect them to behave as responsible parties, as they are under the Oil Pollution Act."

SW10

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djpreston 4th Jun '10 18 of 685
4

In reply to SW10Chap, post #17

Very much an emphasis on the BOP failure - in terms of both the mechanical failure as well as the "fail safes" - automatic trip, rig based disconnect buttons etc.

RIG will be hit and hit hard since, at the end of the day, it is their kit and it failed. Simply cant understand how Obama has not flapped his gob off in the same manner as he has with BP with respect to RIG (oh, of course, its a US company - albeit now Swiss registered).

Fund Management: European Wealth
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Mattybuoy 4th Jun '10 19 of 685

Oh no the "Hip Hop Caucus" is on the warpath, whatever that might be.

"Fury at BP Turns Into Protests and Vandalism"

http://finance.yahoo.com/news/Fury-at-BP-Turns-Into-cnbc-2559513261.html?x=0&sec=topStories&pos=3&asset=&ccode=

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emptyend 4th Jun '10 20 of 685
6

In reply to djpreston, post #18

Simply cant understand how Obama has not flapped his gob off in the same manner as he has with BP with respect to RIG (oh, of course, its a US company - albeit now Swiss registered).

.....mmmmm.  I heard him being interviewed last night on TV.  He said something like "I'd prefer to spend my time "venting" but that isn't what I'm hired to do"........It seems to me that he has spent VAST amounts of time "venting" in the direction of BP and has actually made the impact on the local economy very much worse than it might have been, especially in respect of tourist numbers. He has also, as you note, been relentless in fingering BP for the spill, even though there is every chance that Cameron/Transocean are actually more culpable than BP.

I have a feeling that Obama is going to come out of this extremely badly, as much of his rhetoric will come to be seen as empty, opportunistic, jingoistic posturing.

Right to be angry? - certainly

Right to be venting? - not really but excusable

......but he isn't venting his anger at (all) the right targets!!

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SW10Chap 4th Jun '10 21 of 685
3

I have a feeling that Obama is going to come out of this extremely badly, as much of his rhetoric will come to be seen as empty, opportunistic, jingoistic posturing.

I think the most remarkable thing about Obama's reaction over the past few weeks has been how quickly he's pointed the finger.

In my view, a head of state rise above that level of comment. More importantly, a trained lawyer should know far better than to apportion blame and guilt before any kind of legal proceedings have started.

Perhaps trials can be done away with altogether, especially when smart lawyers like Mr Obama know that "there is enough responsibility to go around."

SW10

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marben100 4th Jun '10 22 of 685
2

I have a feeling that Obama is going to come out of this extremely badly, as much of his rhetoric will come to be seen as empty, opportunistic, jingoistic posturing.

So, if Obama will come out of this badly, what will it do for Republican Governor Jindal:

Jindal likely will shift his focus toward extracting funds and aid from BP, Hogan said.

The prediction seemed to bear true on Thursday when Jindal heaped criticism on BP Chief Executive Tony Hayward for making "idiotic statements" in various media about wanting "my life back."

Hayward has since apologised for the statements and on Thursday said BP will clean up "every drop" of oil.

Such apologies were little solace for Jindal, who used the word "idiotic" three times to describe BP during a news conference in Grand Isle.

"Let me just be blunt, they sound idiotic to us," he said. "I'm sorry for inconveniencing him. I don't know what he'd be doing. Maybe he'd be on a summer vacation."

For Louisiana residents, Jindal's strategy appears to be a winner.

 

 

The main criticism being directed at Obama in the US is that he is not being critical ENOUGH of BP. I have not heard anything unreasonable from Obama himself (perhaps you could point me to a quote, if I've missed it?). Only from his opponents (both on the left and on the right).

We are now in the midst of an election campaign and BP is a nice soft target for politicians of all stripes to bash - and that's exactly what they're doing. It seems that the more they bash the more popularity it garners them - as such an approach is attuned with the nice, neat, simplistic and juvenile view that seems to appeal to the masses. BP are are the bad guys. Simple as that.

Most people had probably never heard of Transocean before (let alone Cameron). I can't see any politician even mentioning them at this time.

Mark

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emptyend 4th Jun '10 23 of 685
2

In reply to SW10Chap, post #21

I think the most remarkable thing about Obama's reaction over the past few weeks has been how quickly he's pointed the finger.

In my view, a head of state rise above that level of comment. More importantly, a trained lawyer should know far better than to apportion blame and guilt before any kind of legal proceedings have started.

Yes - that is precisely the point. It is clearly true that BP have primary responsibility for clearing up the mess - that has never been in any doubt and BP were clear from the off that it was their job. But where Obama has overstepped the mark (Mark - this is where he is being unreasonable!!!) is in pillorying BP as being financially responsible for all the consequences that flow from the incident......

....which is a matter, as SW10 says, for a court of law to ultimately decide. And I think we will generally be pretty surprised if BP were to end up with the largest slice of the total blame.

By choosing to "vent" and hype up the incident (not that it really needs it!) Obama is potentially:

a) prejudicing the outcome of the legal proceedings and

b) increasing the total quantum of damages incurred by the public

If the public don't get  (or FEEL they are getting) recompensed for "every last dime" of damage [which I'd suggest that many in the tourist trade won't, especially where they are not directly affected by the leak] then they will be extremely pissed off and Obama will pay a political price.  Furthermore, it isn't inconceivable that the Federal Government will get sued for:

a) negligence, in allowing the drilling in the first place with inadequate safeguards and

b) whatever it is that Americans call it when interventions have made matters worse rather than better

Much of the blame for these will also end up with Obama (unfairly in the case of a) but completely correctly in the case of b)).

I think he's in a hole - and he is taking what looks like an easy way out of it - but one which will eventually prove to be more costly than if he played a straighter bat with respect to liabilities.

ee

 

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marben100 4th Jun '10 24 of 685
2

Hi ee,

Much as you may feel that Obama has hyped the issue, he is the most moderate of the US politicians I have heard commenting on it. Compared to the others who have, quite literally, been screaming he appears as an oasis of calm to me.

Yes, it would have been better if he had explained the issues more clearly and restrained the more vocal and ludicrous members of his administration but, to use an Americanism: get real, we can't seriously expect that from ANY US politician, can we?

whatever it is that Americans call it when interventions have made matters worse rather than better

In what way has Obama's intervention/speeches made matters worse from the POV of those affected by the spill? [though clearly it hasn't helped from the POV of BP's reputation]. I don't understand quite what you're driving at there.

 

Concerning financial recompense, whilst I am no lawyer and certainly no expert on US law, I would expect any civil actions (either by government or claimants for damages) to be directed primarily at BP, as responsible operator. It will surely then be up to BP to counterclaim from Transocean et al? In that latter vein it is interesting to note that in the call, Hayward mentioned that BP will have to review its relationships with its drilling contractors... I can imagine that BP could, quite literally, end up owning Transocean. When it comes to criminal prosecutions there OUGHT to be a more even handed approach, but I'm not sure to what extent the US attorney general role (which is the role that prosecutes) is a political appointment and subject to political influence?

Best,

Mark

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