BP: crisis play?

Folks,

I said some time ago that I declared this thread closed, as I feel we're beyond the "crisis play" stage. As I said at the time, if people want to discuss BP, please start a new thread.

In the absence of a facility to explicitly close the thread, I will henceforth moderate any further posts on it.

Don't forget this excellent thread for technical matters concerning the Deepwater Horizon accident.

Regards,

Mark

Deepwater Horizon's final hours - long NYT report, with new photos taken by the crew, which claims the rig should have survived.

The second part, which killed 11 people and injured dozens, has escaped intense scrutiny, as if it were an inevitable casualty of the blowout.

It was not.

.......

What emerges is a stark and singular fact: crew members died and suffered terrible injuries because every one of the Horizon’s defenses failed on April 20. Some were deployed but did not work. Some were activated too late, after they had almost certainly been damaged by fire or explosions. Some were never deployed at all.

At critical moments that night, members of the crew hesitated and did not take the decisive steps needed. Communications fell apart, warning signs were missed and crew members in critical areas failed to coordinate a response.

The result, the interviews and records show, was paralysis. For nine long minutes, as the drilling crew battled the blowout and gas alarms eventually sounded on the bridge, no warning was given to the rest of the crew. For many, the first hint of crisis came in the form of a blast wave.

The paralysis had two main sources, the examination by The Times shows. The first was a failure to train for the worst. The Horizon was like a Gulf Coast town that regularly rehearsed for Category 1 hurricanes but never contemplated the hundred-year storm. The crew members, though expert in responding to the usual range of well problems, were unprepared for a major blowout followed by explosions, fires and a total loss of power.

They were also frozen by the sheer complexity of the Horizon’s defenses, and by the policies that explained when they were to be deployed. One emergency system alone was controlled by 30 buttons.

http://www.nytimes.com/2010/12/26/us/26spill.html?_r=1&nl=todaysheadlines&emc=a2

To me it says it all that Halliburton isn't listed in the legal suit.

If the GOM wasn't so important reserves wise I'd say declare the US subsidiary bankrupt, or sell it to the Chinese, the Democrats are obviously after BP's cashflow to pay for their excessive spending plans. See what the Americans say then - it'll be a different story I'll bet.

The US government has been p*ss poor in their treatment of BP vis American involved parties throughout this whole debacle.

I'm still holding though. Nice cushion from low 300's. But knowing politicans, especially left wing ones, I am wary to say the least. I'll be bailing if the dividend isn't restored in the 1st Quarter though.

The US suing BP was for me the final straw and i sold all interest in BP. However my greatest fear was that BP are totally under the spotlight of the US administration and any other spill or accident however small would bring the full wrath of Obama and co onto BP. I felt that this ongoing US threat was not a good investment choice but hope BP succeed in the courts, regards Tom Henrick

Well Obama care will hopefully be kicked out of office in a few years, perhaps well before any conclusion is drawn on the Macondo spill IMO.

Don't really care about what the media says....

I am holding onto my short term Investment........Because the well has been contained, the costs of macondo can be reasonably predicted and in the meantime BP continues to sell Oil at $90/bbl.

I don't think it matters what the US says, it's the courts that matter which will look at all the evidence and come to a rational conclusion.

I think the market understands all this, that is what was reflected in todays bounce back in share price IMO.

I bought BP a few months ago with a short term horizon. I was happy to do so in the light or strengthening oil prices and with the expectation of an uplift when resumption of dividends is announced.

I heard it reported on BBC 1 news last night, that the US government was going to sue BP, and sold my holding this morning. My concern is that the ill informed media comment will lead to short term volatility. I cannot take that risk with funds that I may need to access.

If they were longer term funds I would have kept my holding. I believe oil is a key commodity for anybody taking a long term view of investment; hugely admire the effective way that BP dealt with the crisis, and believe it will be a very much stronger company on what it learns from its mistakes.

I understand, but don't condone, the US government bashing a UK firm in order to make political capital. I don't understand the BBC picking up on that agenda and failing to inform viewers that that there are others involved. IMO the BBC could do better.

Any thoughts out there about how this might actually impact on BP? It will, no doubt, be some time (3 or 4 years at a minimum?) before one might expect any judgement in the case, by which time one hopes there'll be plenty of money put aside to pay out any damages that might be awarded to the US Government. And, presumably, for any legal costs that will arise, both in defending this case and for prosecuting or defending in any subsidiary cases that might be launched with regards to the partners.

But, in the interim - let's say for next few months or so, until the media gets bored with the drawn-out legal process - what sort of effect might the court case have on the BP share price? And, given that there's a court case pending, is this likely to persuade BP's new boss that a resumption of dividends might not be altogether a good idea in terms of public relations?

At the very least, I would have thought, the case will provide a bit of a drag on any uprating of the share price.

Does anyone have any insights on this?

In the meantime, perhaps we should be looking at the legal firms who will become involved. If any of them are quoted (unlikely, I know), then they should be headed for some pretty decent fee income!

Man Siarad

They are British, that's enough!

How come Lloyds of London is included? i thought BP self insured.

WASHINGTON, Dec 15 (Reuters) - The Obama administration sued BP Plc (BP.L) and four other companies over the Gulf of Mexico oil spill on Wednesday, charging violations of U.S. environmental laws, in the opening salvo in what will likely be a lengthy legal battle.

The lawsuit seeks damages from BP, Transocean Ltd (RIG.N), Anadarko Petroleum Corp (APC.N), Mitsui & Co Ltd (8031.T) unit MOEX and BP's insurer Lloyds of London [LOL.UL] for their roles in the worst offshore oil spill disaster in U.S. history.

The lawsuit did not name Halliburton (HAL.N), which did the cementing for the Macondo Well, or Cameron International (CAM.N) which provided equipment for the well, but the Justice Department said the investigation was continuing and more defendants and charges could be added later

Atleast the US Gov seems to be blaming others for the Macondo spill. So might help BP and may get cleared for gross negligence?

http://www.reuters.com/article/idUSN1515966120101215

Gulf of Mexico oil leak: US sues BP for spill damages

The US is suing BP and several other companies in an effort to recover billions of dollars in damages from the Gulf of Mexico oil spill.

The justice department is seeking payment from BP, rig owner Transocean and others, in connection with their role in the spill.

It asks that they be held liable without limitation for all clean-up and damage costs.

The oi leak led to the worst environmental disaster in US history.

Eleven workers on the Deepwater Horizon drilling rig were killed by an explosion which followed, and hundreds of miles of coast were polluted before it was stemmed in July.

"We intend to prove that these defendants are responsible for government removal costs, economic losses and environmental damages without limitation," US Attorney General Eric Holder said in a statement

 http://www.bbc.co.uk/news/world-us-canada-12005240

One word : Ridiculous....

A deal for the Pakistani assets now agreed with Hong Kong's United Energy, for US $ 775 million.

http://www.domain-b.com/companies/companies_b/British_Petroleum/20101215_united_energy_oneView.html

Pretty close to the price-tag originally suggested of US $ 800 million, too, despite the political risk in Pakistan.

Interesting to see United Energy (new to me) pop up like this.

From the weblink:
The purchase by UEG is its first venture in Pakistan, although the company, whose biggest shareholder is Chinese billionaire Zhang Hongwei, has oil and gas operations in mainland China and Indonesia,

So we can put it down as another Chinese purchase, I guess. I wonder whether Mr. Zhang will be picking up other assets on countries where Beijing may have an interest?

This complements the late November sale of its Argentinian assets to Bridas

http://www.domain-b.com/companies/companies_b/British_Petroleum/20101129_argentinean.html

and brings the total value of disposals to nesrly US $ 22 billion, I think.

Not so much a 'crisis play' now - more of a recovery play, given the recent movement in the SP

Man Siarad

So Transocean still hasn't paid out that $1 billion dividend agreed in May: it is still blocked by the courts. 

Transocean Ltd. said Thursday a Swiss court has rejected the company's appeal and upheld a regulatory decision to block the offshore drilling contractor from paying shareholders a $1 billion dividend.

One up to the BP lawyers:

But in August, the Zug Commercial Register blocked the plan due to lawsuits pending over the massive oil spill in the Gulf of Mexico earlier this year.

 http://finance.yahoo.com/news/Swiss-court-upholds-block-of-apf-2198181422.html?x=0&.v=1

In the absence of any new BP thread (which I don't really feel qualified to start...), some news from Pakistan about the assets they want to offload there:

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/7699392

BP's sale of Pakistan assets hits snag as Supreme Court pulled in

Karachi (Platts)--8Dec2010/315 am EST/815 GMT

BP's sale of its oil and gas assets in Pakistan has hit a snag after a local political heavyweight filed a case with the country's Supreme Court asking it to stop the sales process, as state-owned companies might end up buying them back at a far higher price than what BP paid the government in 2002.

Qazi Hussain Ahmed, a former chief of Jamaat-e-Islami, is seeking reasons why the two state-owned companies -- Oil and Gas Development Co. Ltd., or OGCL, and Pakistan Petroleum Ltd., or PPL, -- are trying to buy BP's assets that were sold by the government to BP in 2002 at what he calls a "throwaway" price, a Supreme Court official said Wednesday, on condition of anonymity.

The assets in 2002 were sold at below $200 million and now they might be sold for $800 million, the official said.

The court is currently hearing the process and officials from the petroleum ministry, including the former minister of petroleum Usman Aminuddin, are recording their statements.

BP officials in Pakistan could not be reached for comment immediately.

Meanwhile, OGDCL has decided to delay submitting a bid to buy the assets until after the court decision, an OGDCL official said. OGDCL's board of directors on December 7 decided to jointly bid for the assets with PPL.

UK's Premier Oil, alongside Mubadala, the Abu Dhabi sovereign wealth fund, is also reported to be interested in the assets.

As I recall, Premier have said that they are NOT interested - at least at BP's price. Mubadala were first said to be interested several months ago (September?), but haven't made any move yet and may well be reviewing their acquisitions strategy as a result of Government cutbacks in Abu Dhabi.

The figure quoted of a possible US $ 800 million seems a bit high to me - US $ 600 million seems nearer the mark.

Mind you, it's going to be a brave company, IMO, that takes on Pakistan political risk at the moment - unless they're already well-placed in Pakistan, either as a local company (e.g. OGDCL) or one from the Arabian Gulf whose government has excellent relations with the Pakistani politica/army/tribal elites.

Man Siarad

After Exxon - BP wants to unload some North sea.

BP has sounded out a series of UK-focused energy companies about a potential sell-off of North Sea assets. The embattled oil and gas group is understood to have gone to utilities and oil companies to gauge their interest in the collection of assets worth in the region of $1bn.

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8185148/BP-approaches-energy-companies-over-potential-1bn-North-Sea-sell-off.html

Companies who have said they are looking at the North Sea for potential acquisitions include Petrofac spin-off EnQuest, Danish giant Maersk and smaller production players like Ithaca Energy, plus British utilities like Centrica and Scottish & Southern.

Utility companies are less concerned with high return in the short term than with long term energy security, while oil and gas independents are better placed to milk assets for the duration of their lifetime.

24 November, 2010 BP MAKES A SIGNIFICANT DEEP GAS DISCOVERY IN EGYPT'S WEST NILE DELTA

BP Egypt announced today that it has made a significant gas discovery in the Deepwater West Nile Delta area.The Hodoa discovery is located in the West Mediterranean Deepwater, Nile Delta concession, some 80 km northwest of Alexandria. The WMDW-7 well was drilled to a depth of 6350 metres and is the first Oligocene Deep Water discovery in the West Nile Delta area. Further appraisal is underway.

BP operates and holds 80% of the West Mediterranean Deepwater concession with RWE Dea holding the remaining 20%. Hodoa was drilled by the Pride North America Semi-Sub rig, in a water depth of 1077 metres. Mike Daly, BP's Executive Vice President of Exploration said: "The Hodoa discovery further demonstrates the great potential of the deep reservoirs in the Nile Delta."

Hesham Mekawi, President and General Manager of BP Egypt, commented: "Hodoa is an important discovery which builds upon BP's previous successes in the West Nile Delta. This discovery further reinforces the leadership role played by BP in Egypt and its ongoing commitment towards the development of Egypt's future gas business."

To date, BP Egypt, in collaboration with the Gulf of Suez Petroleum Company, BP's JV Company with the Egyptian General Petroleum Company, has been responsible for the production of almost 40% of Egypt's entire oil production. In addition, BP Egypt and its partners are currently producing close to 35% of the domestic gas demand. ·

Without wanting to go through the 600+ replies on this thread that I've not read, I'd love to know if anyone has any strong reasons to make BP less than a buy at around 450p...

The company's cash flow is gargantuan and dependable, and instinct tells me they'll restore the dividend as soon as possible. After asset disposals they'll rest a lot more heavily on P/E than P/B, and this is my main concern.

I'm looking at Shell and BP at the mo on a value basis... it would be simple to go with dependable Shell but BP is surely, surely still cheap. Capital appreciation if I buy Shell will almost certainly be outdone by BP.

Great thread, thanks alot Mark.

Today my price target of 450p has been hit and I am duly out.

It has been an interesting but only very moderately profitable ride for me. The chief reason is that the amount of oil spilled turned out to be far, far, more than I had anticipated - lending ammunition to BP's detractors and substantially increasing BP's actual & potential liabilities. I'm not sure that we've heard the final word on the true amount of oil spilled (or ever will) but there may be more information to emerge as the legal issues rumble forward. The damage done to the company (at least in the short/medium term) is considerably more than I had expected when I started this thread, as can be seen from the header.

My experience reinforces the lesson that it may pay to wait until more clarity emerges in a crisis situation. The point of maximum pessimism was only reached in late June, by which point BP's market cap had fallen by more than 50% from its undisturbed value but there were clear signs of increasing hydrocarbon collection rates from the improved containment system.

One unexpected consequence of the crisis is that Tony Hayward's replacement by Bob Dudley seems to have triggered a fundamental shift in BP's strategy. This article from the FT highlights the changes:

Bob Dudley said BP had in the past paid a high dividend “which took a lot of the free cash flow of the company [and] which probably constrained some of its ability to continue to invest”.

“So, in many ways, the ability to reset the dividend gives us a different view of strategy than we had before; it frees us up,” he added.

The comments are the clearest signal yet that Mr Dudley intends to take a much less generous approach on dividends than his predecessors in an effort to restore growth at BP.

Investors have already speculated BP might reset the dividend at about half its previous level. Some analysts argue the world’s supermajors have become hampered by traditionally high pay-outs which have prevented them from investing more in growing production.

It appears that Dudley wants to focus more on E&P. In the long run, this may prove to be a shrewd move and is something many have called for, but it definitively shifts BP from being a crisis play into a very different sort of investment. Personally, I can find many more straightforward E&P businesses that I feel offer a better risk/reward than the unknown "new BP".

I hereby declare this thread closed and call on a more committed BP investor to start a new thread discuss the merits of BP as a longer term investment.

Thanks to all contributors.

Mark

Obama not doing well in the mid-terms has no doubt helped the price. If Republicans get back in who are generally more pro-big oil this should help BP in the courts.

Log

Does'nt surprise me at all as BP is still very cheap. I expect it to go much higher.......It was always a case of time in the market rather then if.

It does'nt take a genius to work out that a company that generates about $5-6bn a quarter at an oil price of $70-80/bbl that has accounted for a large part of their costs in the previous quarters and won't have those one off costs in the future that it is cheap.

Lets not forget BP has not taken into account the money they expect to recover from other stakeholders in the Macondo well, so there is still loads of room for upside surprises IMO.

Questor Buy Rec in the Telegraph....

http://www.telegraph.co.uk/finance/markets/questor/8105636/Questor-share-tip-BPs-dividend-is-likely-to-be-lower-but-its-still-a-buy.html?

Wonder if it will help as much as a recent Buy Rec did for VGM :)

BP results out. I'm sure everyone is aware of them. here are the links:

http://www.investegate.co.uk/article.aspx?id=201011020700084207V&fe=1

http://www.investegate.co.uk/article.aspx?id=201011020701034325V&fe=1

A charge of $7.7bn, and no talk of divi until early 2011 results when they will review reinstallment.

That they are Dodge.

Nice to see Obama getting a clearer picture of who was to blame. Interested to see how the Transocean deliberations go. Should prove to be interesting reading...and am expecting it to have a significant positive upside on BP's SP as the true picture comes to light and the market finally realises that the collapse in valuation in no way mirrors the likely costs the company will have to bear.

It has been a nice investment so far. Hopefully 1st quarter will see the dividend reinstalled in some form as well...

There's a more independent article on the cementing issue here: http://english.capital.gr/News.asp?id=1075893

...Halliburton tested the cement foam's stability at least four times in period before the disaster, and three of those tests showed that the cement was unstable. In March, Halliburton shared data about one of the tests with BP, but "there is no indication that Halliburton highlighted to BP the significance of the foam stability data or that BP personnel raised any questions about it," investigators found. The data were included in a technical report along with other information, meaning BP, too, could have known about the unstable cement.

"Halliburton and BP both had results in March showing that a very similar foam slurry design to the one actually pumped at the Macondo well would be unstable, but neither acted upon that data," according to a letter to the commission from its chief counsel Fred Bartlit and other staffers.

The commission declined to make available the March 8 email from Halliburton to BP. But the email, obtained by Dow Jones Newswires, includes seven pages of graphs and charts with dozens of different kinds of data. "I've attached the lab test for your review. Let me know if you have questions. Thanks!" a Halliburton engineer wrote to BP.

The test data, shared with staff of President Barack Obama's commission on the Deepwater Horizon oil spill, run counter to Halliburton's claims that the nitrogen-cement mixture used in the Macondo well was stable. In September, Halliburton's vice president of cementing, Thomas Roth, told a National Academy of Engineering panel that "all of the design work, all of the testing work that was done by Halliburton in advance of this job indicated that the foam system was stable."

The data bolster BP's claims that faulty cement contributed to the worst offshore oil spill in U.S. history. BP has come under fire for assigning most of the blame for the disaster to contractors. BP declined to comment...

It certainly seems to me that Halliburton have been "economical with the truth", in their statements to official bodies.

Of course, this is only one factor in the accident but it helps to build up a more complete picture.

Concerning the future of this thread, we are moving towards the end the "crisis play" stage of the investment thesis. At BP's current price level, I am pleased to be able to say I am modestly in profit on the trade, however we are still a little short of the short term price target of 450p I set a while ago (based on a roughly 1/3 diminution of BP's "undisturbed" market cap. before the spill, when the facts and likely impact of the spill on BP became clearer).

I will give it a couple more weeks or so to see whether that short-term target is met and then close the thread. At that point (being around 6 months since the accident occurred), I think we will be looking at the longer term investment case for BP, rather than a "crisis play", as such. At the current price level, my personal inclination is to retain my modest investment, as the current analyst view of 2011 dividends is ~30p, which makes the investment attractive simply on a yield basis.

Regards,

Mark

Yes I think you probably were. I wasnt.

And no not interested in being cheered just responding to Fangers.

I just had a look back at my comments over the last six months on the Makondo well disater and I can hardly find a post from me that hasn't been accurate with my predictions about the technical aspects, leak rate, the likely time scale for its repair and the share price response. There's even a post where I say I'm buying some at 300p.

If anybody had actually followed my relevant postings on the technical progress of the well capping process they would have made a nice little bit of dosh.

This was the point of the thread on BP as a crisis play.

Yet again Fanghorn misrepresents what I said.  I think what he really objects to most is that in a small fraction of my total contribution I pointed out some posters little britain anti American ranting, which clearly seemed  to carry more weight with many thumb clickers than any rational input or discussion. And in one post I said that BP's response had been woeful when calculating the fraction (15%) of oil they had collected 80 to 90 days after the explosion. Yet more fury and indignation.

I still think that BP believes itself to be predominantly responsible as the operator and indeed the only company capable of clearing it up. Which is what they did - and as I said elsewhere, all credit to them for doing so.  I don't doubt that some blame and fines will eventually be levied against the other companies involved.

But for clarity and future prospects the worst case scenario is the safest and that is BP will carry the cost. Even if court cases require Transocean and Haliburton to cough up, it will probably be years hence and on a discounted cash flow, almost irrelevant to BP's current situation.

Bugs.

I agree Passinthru that one needs to maintain some sense of proportion...it's just that as all the new information comes to light it is becoming clearer that BP was not "Wholly" to blame(as the likes of Bugsmoney were attempting to encourage us to believe when we first started discussing the disaster and our concerns with Obama's seemingly inability to find fault with anyone other than BP)

What now for Halliburton. Next up is Transocean, and their poor safety record is well known. Will Obama be apologising for vocally demanding BP suspend its dividends whilst at the same time conveniently ignoring that Transocean was paying one to the tune of $1bn!

You beat me to it Fangorn! Time for the US media and politicians to hang their heads in shame.

Seems the news on BP is hotting up vis apportionment of blame for the Macondo disaster.

http://www.dailymail.co.uk/news/article-1324671/Vindication-BP-tests-blame-U-S-firm-oil-rig-fault.html#ixzz13izbpDSW

BP vindicated after investigator blames U.S. firm for fault that led to Deepwater Horizon oil spill

American oil giant Halliburton knew weeks before the Deepwater Horizon explosion that the cement mixture it used to seal the BP-owned well was unstable, it was claimed last night.

It appears to confirm the defence by BP bosses that the faulty cement was a primary cause of the blow-out.....

And this is before the investigators get round to reporting on Transocean's role in the whole debacle.


It is looking increasingly likely that BP won't be footing the whole bill, with some of likely being paid by Transocean and halliburton (as well as its two silent partners,Andarko and Mitsui) , as has been my suspicion right from the start. I never beleived,as some did, that BP was wholly at fault.

Time, I think, for a new BP thread (perhaps from someone who understands the company better than I do).

In the meantime,here's a useful little disposal

http://www.ogj.com/index/article-display/2219069994/articles/oil-gas-journal/general-interest-2/companies/2010/10/marubeni-to_buy_bp/QP129867/cmpid=EnlDailyOctober252010.html

By OGJ editors
HOUSTON, Oct. 25 -- Marubeni Oil & Gas (USA) Inc. agreed to purchase BP PLC’s interests in four mature producing deepwater oil and gas fields in the Gulf of Mexico for $650 million. Closing, subject to regulatory approval, is expected in early 2011. BP's net production from these fields is 15,000 boe/d.

That's part of the acquisitions from Devon Energy sold on, with BP still hanging on to its other GoM interests

Man Siarad

Premier may be mulling a US $ 500 million bid for BP's Pakistan assets - estimated to be worth around US $ 690 million, according to this Times story

http://af.reuters.com/article/energyOilNews/idAFLDE69I00420101019

Citing people familiar with the talks, the newspaper said it is not certain whether Premier or Mubadala [MUDEV.UL], the Abu Dhabi sovereign wealth fund which has also expressed an interest in the assets, will participate in the bidding next month.

Mubadala have certainly shown some interest over the past few months - though whether or not they'll bid is another matter entirely.

With the announcement yesterday of the sale of BP's Venezuela and Vetnam interests to TNK-BP for US $ 1.8 billion,

http://www.energy-pedia.com/article.aspx?articleid=142545

the sale of assets seems to be gathering pace.

The sales are part of BP's plan, announced in July 2010, to make divestments of up to $30 billion by the end of 2011 to help the company meet its financial obligations arising from the recent Gulf of Mexico oil spill. As part of this programme, BP has previously announced agreements to sell assets in Egypt, Canada and the USA to Apache Corporation for $7 billion and to sell its Colombian exploration, production and transportation business to Talisman and Ecopetrol for $1.9 billion.

That makes around US $ 11.2 billion, if the Pakistan sale goes ahead. So another US $ 18.8 billion to go....

Interesting to see the TNK-BP JV extending overseas, too.

Man Siarad

I'd hardly call the last three posts disruptive!

I know Nigel - it's classic. As was his whining about being pseudo bullied.I was amazed when he private messaged me complaining about being effectively bullied by some here because they had the temerity to disagree with him. Yet he is quite happy to dish it out when no thumbs down option is available!!! And I'm pretty sure it was him on all those unexplainable solo ones on news items i was posting - happened right after the BP confrontation.!

Some people really are pathetic. Don't dish it out if you can't take it is my view. I'm more than happy to engage in both.

For all of you here interested in the impartiality of a certain poster who vehemently disagreed with anyone who couldn't see that BP was wholly to blame in the disaster I give you his less than impartial commentary on ADVFN to see his true character(or lack thereof)


That is hilarious. Always amazes me quite how heated some people get - it's a freaking BB!

For all of you here interested in the impartiality of a certain poster who vehemently disagreed with anyone who couldn't see that BP was wholly to blame in the disaster I give you his less than impartial commentary on ADVFN to see his true character(or lack thereof)

BP thread post 67019
http://www.advfn.com/cmn/fbb/thread.php3?id=8166527&from=67016

Obviously the inability to click a thumbs down is too much!

BP is in talks with China's third largest oil company and biggest offshore oil explorer, CNOOC, to sell its Argentinian business for about £6.3bn. It is understood that BP is keen to sell its 60% stake in Argentina's Pan American Energy to pay compensation claims after the Gulf of Mexico spill

....according to Mail on sunday........

Sold half my BP position for a small profit but barely more than breakeven. I've recycled funds into Soco I think it has more upside for less downside risk in the short-medium term.

Looks like the trial to decide on most of the blame has been pushed to Feb 2012 (quite a long wait) and results on the BOP not due until Feb 2011 at the earliest. Quite a long wait for that then. Probably better to string things out as it will be in BP's favour to do so.

Log

http://www.investegate.co.uk/article.aspx?id=201010070717530059U&fe=1

BP and SOCAR (the State Oil Company of the Republic of Azerbaijan) announced today they had signed a new production sharing agreement (PSA) on joint exploration and development of the Shafag-Asiman structure in the Azerbaijan sector of the Caspian Sea.

No surprises here really.....

"More than a third of applications for payouts from BP’s oil spill compensation fund are either inflated, unsubstantiated or fraudulent, according to the official in charge of the $20 billion programme. Kenneth Feinberg, whom President Obama appointed on June 16 to manage the scheme for fishermen and others affected by the disaster, said that of the roughly 104,000 claims received, almost 40,000 needed to provide more information to support their claims, according to the Times. "

Figures yesterday from scientists suggest around 4.4 million barrels escaped from Macondo, which is in good agreement with US gov figures.

For those that prefer other forms of measurement, I make that fewer than 200 Olympic swimming pools*.

It's weirdly interesting that the amount of 'sludge' escaped from the alumina plant in Hungary is the same* figure, according to this BBC report:

Some 600,000-700,000 cubic metres (21m-24m cubic feet) of sludge escaped from the plant, 160km (100 miles) from the capital, Budapest.

I'd guess that the human and environmental cost will be substantially higher in this case though.

SW10

* 700 000m3 is approximately, er, 4.4 million barrels. Or 186 Olympic swimming pools...

I'm not surprised. It's more or less all over.

The well has been sealed, the spill stopped. the environmental impact not as bad as the alarmists were portraying it as being. The clean up effort has been immense - both the extent to which BP pulled all the stops out,and the efforts of all those involved on the ground.

Now it's merely a matter of sorting out how to apportion the blame, and the extent of the penalties.Both of which will take some time to quantify. Not much in the way of hysterical news for the media to get their claws into imv.

I find it very strange how quickly everything's gone quiet on the spill. Its as if the US media are disappointed about the lack of impact, and don't want to mention it any more. No news is good news, I guess.

Kuwaitis looking at BP's Vietnam assets, accordinfg to PetroVietnam

http://uk.finance.yahoo.com/news/kuwai-s-kufpec-eyes-bp-s-vietnam-assets-newspaper-targetukfocus-eb55fe1d25d3.html

Nice to see the Gulf states looking at increasing their E & P interests in South East Asia

Man Siarad

Well there seems to be a general acceptance that BP may be able to draw a line under the costs associated with Macondo and that line is going to be close to the $20Bn mark. There even seems to be some hope that this might include a deal with the US government whereby they are found not to be grossly neglegent.

The assigment of GoM assets to cover costs is VERY MATERIAL in my view as it means that if BP are shut out of GoM these assets are not going to ammount to enough to cover the liabilities.

The other news of hinting of a restoration of dividend in 2011Q1 is also very comforting for institutions that can't hold a non-dividend paying stock. These institutions might now take the view that it is safe to start to buy back positions and this will help the stock. Pre the GoM disaster BP was paying 56c/shr dividend or about 36p. I doubt they will fully restore the dividend but at 2/3rd of this ammount that would be roughly 20p. At a share price of 500p that comes in at a 4% yeild not amazing but probably enought to get some instos buying. If it is fully restored to 36p

Obviously Oil at $82 helps a lot too. I'm not sure what the impact on freecash flow per $ above $70 POO is but I seem to recall it is significant. Put another way a 2011 year with POO>$80 would probably go a long way to paying costs.

There also have been quite a few assets sales above book value and the TNK-BP relationship seems better at least for now.

So with a bit of luck and a following wind I can see 500p on the cards. I'll probably start selling down my stake that I bought as a crisis play at around 450p though.

yes, indeed. Still holding more than that and very confident of £5 being hit sometime this year.

hehe yes when it goes your way this "game" is alot of fun.

Holding for 500 myself and the resumption of dividends.

Must admit I've topsliced a few - didn't expect a 10% return in a matter of days - sometimes I love this "game" ;-)

http://www.investegate.co.uk/article.aspx?id=201010010900026841T&fe=1

BP PLEDGES COLLATERAL FOR GULF OF MEXICO OIL SPILL TRUST

http://www.bbc.co.uk/news/business-11444180

BP boss expects new year dividend

Hmmm, you've obviously never had to work for Andy Inglis!

Tournesol

I think he has been sacrificed. BP and Dudley in particular will go to great lenghts to show that their upstream business is undergoing a big shake up and is being made a lot more safe. I'm sure Inglis will be re-hired as a consultant or something of that nature of he'll be given a golden goodbye. Just looks more like PR and Politics here than anything else.

Share price gathering a bit of momentum though today. The decent bond sale and the idea of an earlier settlement along with a good old USA boy now in charge might be the catalyst. Still a long way to go though IMHO.

Log

It strikes me as very significant that Andy Inglis - the head of the Upstream business - is to leave BP

He is only 50/51 so is too young to be retiring

And after the disaster at Macondo I hardly think he'd leave voluntarily - his CV won't look exactly brilliant now

I think his departure is likely to be seen as be non-voluntary.

Hayward has been effectively demoted and his place taken by Dudley. Dudley's organisational changes announced today replace the monolithic structure of the Upstream business with a more modular approach which makes Inglis's role redundant. But I'd have expected AI to be redeployed somewhere else in the same way that Hayward has been.

I wonder if BP are casting him as a sacrificial offering to be made on the altar of PR?

yes definitely agree...been building a decent stake. some from Soco - will be an interesting race.

A stonking buy down here I'd argue with a lot of uncertainty moving away.

Some talk of an early settlement with the US Government as reported by AP Dow Jones via Louisiana Representative Steve Scalise. This aparently was later denied by the Obama administration.

http://www.streetinsider.com/Corporate+News/BP,+Obama+Aiming+for+a+Settlement%3B+BP+Shares+Rally+Sharply+Into+the+Close/6001964.html

The stock is up probably on this rumour though.

As per my numbers above avoiding Gross Neglegence is a big deal here. Although I can't really see how a "deal" with the US Government would be allowed to change the outcome of that since surely the courts will decide this.

Still quite confused but at least we are making slight progress on the share price front.

Also of note BP rolled a lot of its debt which was serveral times oversubscribed in the latest bond market auction. Credit default swaps have all fallen back down too so it seems the market no longer is worrying about BP being a going concern. Asset sales so far have been far above book value - although you'd expect the best assets to go first anyway probably.

Oh and the oil isn't leaking anymore!

Log

Raft of changes at BP

DUDLEY SETS UP NEW SAFETY AND RISK UNIT AND SIGNALS SWEEPING CHANGES AT BP

http://www.investegate.co.uk/article.aspx?id=201009291041075001T&fe=1

So at 4.4m barrels which at a gross negligence fine of $4,300 would be $18.9bn and if no gross negligence $4.4Bn which would be shared and thus reduced to $2.6bn which can be written off against tax too I think which is about 35% further reduction.

The claims fund has paid out so far just $240m which is not really very much but perhaps much more to come.

Total spill costs are at $9.4Bn again this figure might well be shared and tax deductible reducing it to say $5.64 before tax if no gross neglegence.

So a lot of variance on the total bill which could be $50Bn+ or more like $10Bn before tax if no gross neglegence which I belive will be hard to prove.

Market cap is now $120Bn but was $60Bn higher before the spill. Asset sales so far although small have been done well above book value. Oil has been $75+ which means in the six months since the spill BP should have generated cashflow from operations of about $15Bn give or take.

Figures yesterday from scientists suggest around 4.4 million barrels escaped from Macondo, which is in good agreement with US gov figures.

For those that prefer other forms of measurement, I make that fewer than 200 Olympic swimming pools*.

SW10

*All right, 186.

http://www.rte.ie/business/2010/0920/bp.html

"BP said payouts to people affected by its Gulf of Mexico oil spill had dramatically increased since it surrendered authority for dispensing funds to an independent administrator."

They've still only paid out 19,000 claims totalling over $240m! Small beer.

Total costs of spill response reached $9.5bn...

Agree with your comment that it's "time to top up" Nigel.

Personally, hoping for a subdued response from the markets - top up time I feel.

Worth mentioning macondo has been officially plugged with cement and will pose no more of a threat. Doubt it will affect much though.

Let's hop bp can lawyer up now

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8010992/BP-shares-are-cheap-says-legendary-oil-investor-T-Boone-Pickens.html

BP shares are 'cheap', says legendary oil investor T Boone Pickens

Once the well is properly P&A'd and full of cement I expect BP might start to come out guns blazing and start to defend thier position a bit more strongly.

I've always thought that their strategy would be first to clear up the oil and plug the well then go after other parties for their contribution. They may also now start to deny some of the more outrageous claims on them.

Still see 450p as likely from here but might take until 2011Q1.

Log

Nice to see that BP are no longer being deemed SOLELY responsible: http://www.canadianbusiness.com/markets/market_news/article.jsp?content=D9I90NE80

NEW ORLEANS (AP) - Louisiana's attorney general has asked a federal judge to rule that the owner of the Deepwater Horizon drilling rig was liable for some of the oil that gushed out of a blown-out well on the bottom of the Gulf of Mexico.

Attorney General James "Buddy" Caldwell's office filed a lawsuit Tuesday against rig owner Transocean Ltd. The complaint asked a judge to rule that Transocean bears some liability for the underwater spill under the Oil Pollution Act.

"The Coast Guard has already named Transocean as a liable party, but the extent of the liability needs to be determined by the court," Caldwell's office said in a statement Wednesday. "This legal determination is necessary so that the state of Louisiana and its citizens can move forward and be made whole by those parties that are responsible for this disaster."

Transocean has argued that the company only is responsible for any oil that spilled from the rig itself, above the surface of the water.

More than 200 million gallons of oil spilled into the Gulf from the well. Caldwell's suit says the rig was carrying about 700,000 gallons of fuel when it exploded April 20, killing 11 workers.

A Transocean spokesman declined to comment on the suit.

Mark

According to Radio 4's Today programme, Thad Allen has just said that the relief well should intersect the original well later today and that the well will be permanently sealed by Sunday.

I'm a little surprised by the statement - seems like tempting fate to me - why not make these statements after the intersection/sealing rather than before?

But nevertheless I have to expect this to be a generally positive influence on the SP.

http://www.bloomberg.com/news/2010-09-15/cnooc-may-pay-bp-10-2-billion-for-argentine-asset-citi-says.html

Cnooc May Pay BP $10.2 Billion for Argentine Asset, Citi Says

BP: Spill claims 'probably' won't top $20 billion

http://www.msnbc.msn.com/id/39145199/ns/us_news-environment/

I've not read the 500+ pages, & haven't really been keeping up with events, but in my simple way of thinking, if you take each of the six bullet points, and assume that each & every one of them alone could have prevented the disaster, then it would appear that BP are perhaps only liable for half of one of them (the second), and the others are all attributable to other parties? Perhaps part of the first also would have been 'approved' by BP, but seems like heavy emphasis on the cement mix rather than the shoe/spacer issue.
Looks like a reasonably good defense document from the summary?.
I used to pump cement into wells many years ago so I'll be interested to find out more.

Edit - Page 32 of the report has a nice visual that pretty much sums up the above & says "If any of the critical factors had been eliminated, the outcome of Deepwater Horizon events on
April 20, 2010, could have been either prevented or reduced in severity."

This looks like a totally inexcusable failure - frankly it boggles belief.  When all else fails - the failsafe cannot fail.  I suspect much will be made of this and exactly whose fault it was that the BOP and associated systems was not working.

8 The BOP emergency mode did not seal the well. Three methods for operating the BOP in the
emergency mode were unsuccessful in sealing the well.
The explosions and fire very likely disabled the emergency disconnect sequence, the
primary emergency method available to the rig personnel, which was designed to seal the
wellbore and disconnect the marine riser from the well.
The condition of critical components in the yellow and blue control pods on the BOP very
likely prevented activation of another emergency method of well control, the automatic
mode function (AMF), which was designed to seal the well without rig personnel
intervention upon loss of hydraulic pressure, electric power and communications from the
rig to the BOP control pods. An examination of the BOP control pods following the accident
revealed that there was a fault in a critical solenoid valve in the yellow control pod and that
the blue control pod AMF batteries had insufficient charge; these faults likely existed at the
time of the accident.
Remotely operated vehicle intervention to initiate the autoshear function, another
emergency method of operating the BOP, likely resulted in closing the BOP’s blind shear
ram (BSR) 33 hours after the explosions, but the BSR failed to seal the well.

someone (on ADVFN ???) has suggested that the BOP test procedure involved disconnectng the cutting shears and that in error these were not reconnected. so the test that was done showed that the ram mechanism (when disconnected from the shears) responded properly to the controls. But there was no fail safe procedure to make sure the shears were re-connected after the ram had been tested.

The result of BP's investigation are now out and all details, including a video can be found here: http://www.bp.com/sectiongenericarticle.do?categoryId=9034902&contentId=7064891

From the accompanying RNS:

...The report - based on a four-month investigation led by Mark Bly, BP's Head of Safety and Operations and conducted independently by a team of over 50 technical and other specialists drawn from inside BP and externally - found that:

 

• The cement and shoe track barriers - and in particular the cement slurry that was used - at the bottom of the Macondo well failed to contain hydrocarbons within the reservoir, as they were designed to do, and allowed gas and liquids to flow up the production casing;
• The results of the negative pressure test were incorrectly accepted  by  BP and Transocean, although well integrity had not been established;
• Over a 40-minute period, the Transocean rig crew failed to recognise and act on the influx of hydrocarbons into the well until the hydrocarbons were in the riser and rapidly flowing to the surface;
• After the well-flow reached the rig it was routed to a mud-gas separator, causing gas to be vented directly on to the rig rather than being diverted overboard;
• The flow of gas into the engine rooms through the ventilation system created a potential for ignition which the rig's fire and gas system did not prevent;
• Even after explosion and fire had disabled its crew-operated controls, the rig's blow-out preventer on the sea-bed should have activated automatically to seal the well. But it failed to operate, probably because critical components were not working.

Commenting on the report, which he commissioned immediately after the Macondo explosion, BP's outgoing chief executive Tony Hayward said: "The investigation report provides critical new information on the causes of this terrible accident. It is evident that a series of complex events, rather than a single mistake or failure, led to the tragedy. Multiple parties, including BP, Halliburton and Transocean, were involved. 

"To put it simply, there was a bad cement job and a failure of the shoe track barrier at the bottom of the well, which let hydrocarbons from the reservoir into the production casing. The negative pressure test was accepted when it should not have been, there were failures in well control procedures and in the blow-out preventer; and the rig's fire and gas system did not prevent ignition.

"Based on the report, it would appear unlikely that the well design contributed to the incident, as the investigation found that the hydrocarbons flowed up the production casing through the bottom of the well," Hayward said.

BP's incoming chief executive Bob Dudley said: "We have said from the beginning that the explosion on the Deepwater Horizon was a shared responsibility among many entities. This report makes that conclusion even clearer, presenting a detailed analysis of the facts and recommendations for improvement both for BP and the other parties involved. We have accepted all the recommendations and are examining how best to implement them across our drilling operations worldwide...

Mark

The question keeps coming up as to where BP can look for growth in future.

The BP website provides a presentation made by Hayward at this year's AGM which goes some way to providing an answer - see slides 16-21

The Deepwater Horizon accident investigation report prepared by BP's internal investigation team on the causes of the Gulf of Mexico tragedy, is expected to be published tomorrow at 1200 BST / 0700 EDT. When published, the full report will be available at www.bp.com and BP will issue a further announcement as appropriate.

It seems like an odd argument that BP sells $30b of assets to have the cash sitting in an account and then still expect the company to perform as before.

If indeed they are simply pruning mature assets or poorly performing ones then it begs the question why didn't they do that before.

I guess this disaster may act as some kind of catharsis for BP and it will come out leaner and stronger but surely it will take some time. I'm not convinced.

B.

IMHO BP does not actually need to raise a vast wodge of cash all at once. It could reasonably expect to fund the costs associated with the Deepwater Horizon disaster on a pay as you go basis from its ordinary cashflow.

However the Obama administration has done its level best to create a climate of hysteria - ignorant claptrap like criticising paying dividends when the bill for the clean-up has still to be determined - and so on.

I reckon that BP has decided that the best response is the "loads a money" ploy of raising 30 billion in cash and waving it in the faces of anyone who questions theor ability to cover the costs. Once there is 30 billion sittnig in a deposit account BP will be able to go back to business as usual in terms of dividends and any other expenditure without BO and his friends beibng able to suggest that the business is trying to welch on its obligations.

To that end BP is selling off 30 billion worth of assets which include
- assets that are mature and ex-growth
- assets that are easy and quick to sell
- assets that will be impaired by association with BP and which are worth more to athird party than they are to BP

http://uk.finance.yahoo.com/news/bp-restarts-sale-of-alaskan-assets-report-reuters_molt-53a9162a912b.html

LONDON (Reuters) - BP has revived the sale of its Alaskan assets after failing to offload them to U.S. oil and gas company Apache in July, the Financial Times reported on Monday.

Citing banking sources, the newspaper said Houston-based Apache is still seen as a buyer. It said Occidental Petroleum Corp (NYSE: OXY - news) , a U.S. group, is also a potential suitor.

So still a way to go to reach that US $ 30 billion target for asset sales.

I note, by the way , that the story doesn't mention the desire to offload the Pakistan assets. Back in July, Pakistan's OGDC expressed an interest

http://rupeenews.com/2010/07/23/pakistans-ogdc-to-buy-bp-pakistan/

..

It isn’t clear what BP’s business in the country is worth. The company produces about 250 million cubic feet of gas a day and 14,000 barrels a day of crude oil.

The government could buy BP’s assets via its state-run oil companies, Mr. Malik said.

BP earlier agreed to sell its oil and gas assets in North America and Egypt for $7 billion to Apache Corp., and had decided to sell its stake in the Argentine unit Pan American Energy, which could be worth $9 billion, and is also in talks with Bridas Corp., Dow Jones Newswires said Friday.

Mr. Malik said the oil ministry would take up the proposal to acquire the company’s assets if and when BP decides to seek formal approval. The completion of negotiations and final sale could take as long as a year.

“The government of Pakistan can exercise its pre-emptive right to buy out BP’s interests, but we have to see how much are they asking. They told us about the possible asset sale only a few days ago, so it will still take us some time to start due diligence.”

Others reported to be interested too:

http://www.atimes.com/atimes/South_Asia/LG27Df03.html

Talks over the sale of BP interests in Pakistan are in the final phase with a United Arab Emirates-based company and a meeting in this connection has been held at Khaskheli oil field in the Badin district in Sindh province, Geo News, a private TV channel, reported.

BP is reluctant to compromise on price and intends to continue its operations until the finalization of any deal. "You will see an actual transaction taking place any time around December," The News reported BP spokesman Sabeen Jatoi as saying. "We will not be selling at a price that does not represent a good deal for BP shareholders."

I'm far from sure about that "final phase" bit, as far as any UAE company is concerned, by the way.

If this divestment, and perhaps some of the other planned asset sales, are going to take another four months, that'll take us well beyond the "crisis play",  - more into a recovery mode - depending on legal manoeuvrings in the US, of course...

Man Siarad

Marben et al.

This thread is entitled Crisis Play - and I'm beginning to think that phase is coming to a close.

There has been an extremely peculiar situation where the SP was adversely and disproportionately affected by  a very public and ugly disaster taking place.  It was particularly interesting because the whole value of BP was being dictated by one well.

BTW I started my serious investing career with a crisis play (didn't know that's what is was called then) in 2003 when I "put the farm" on Shell after it appeared that they had overstated their booked reserves by 10 or 20% due to some standard or other and the SP about halved. Over the next 2 - 3 years it pretty much recovered. Although the price has been higher I note Shell is much the same as it was in 2006 when I sold out.

As for BP at 300p it seemed that far too much value had been wiped off the share price by the media and political hysteria, and that paying attention to the engineering side actually provided a very clear marker to me that the SP would start to rise as soon as that oil stopped spewing and the emotional fear subsided. And it proved to be so.

More recently the exchange of BOP preventers depressed the price and again probably due to lack of understanding investors fearfully bailed. So at around 370 it seemed like a buy for technical reasons.

Marben you did a back of the fag packet calculation and came up with a figure not so far from my 450p guesstimation. Once the well is officially killed the economic, political and legal winds that will assail the good ship BP just seem so unpredictable that I will probably start to divest.

I expect that BP will recover slowly but it may not and it changes the investment case from crisis play to something else.

Bugs

PS I agree...with a crisis play - you need to count to ten before investing.  It takes a while for the falls to generate more fear and stop-loss triggering and there are usually several downlegs before settling.  Around 50% is becoming my threshold for getting interested.

Hi Z

Well that is obviously the problem with BB type discussions. Almost everyone on them is long the stock and so there is soooo much confirmation bias that skews peoples opinion.

I hold a fairly big chunk of BP and have averaged down. I'm not very impressed with the trade so far and I'm showing a small loss. I might cut and run if I see better upside. However I think a valution of 450p+ is fairly undemanding and there could easily be some pretty positive newsflow in the pipeline to get us there and above.

I'd say what I got wrong here was not the technical aspects of the spill as I always thought environmentally it would not be the disaster that the media suggested. However politaclly I got it totally wrong. The way the Obama administration went after BP was totally out of the blue and has no doubt impacted the company hugely.

For this reason I don't expect to make very much money out of my investment as a crisis play. I do however think there is further room for improvement so I will stay long.

I would also say like the oil spill itself the Obama administration will also be a think of the past quite soon. The cost of the spill will probably be spread over 10 years and won't significantly impact BP's cashflow as long as oil stays above $75.

Log

thing is - everyone on this thread who is long and/or who has averaged down will share similar opinions of intention to hold and potential for appreciation.

Anyone with a counter-view?
Has sold and won't buy back in?
Sees risk of significantly capped upside?
Sees risk of greater probability of more downside?
Is actually short?

I don't think that it would be politically acceptable for BP to be seen to be doing much whilst the spill story is still running, but as soon as the well is permanently sealed, I expect that BP will be eager to address the vulnerability that has resulted from the collapse in their share price so as to protect themselves from opportunistic low ball bids.

They will be anxious to resume dividend payments and to achieve strong dividend growth thereafter.

They will also be determined to communicate to the markets and the investment community the full extent, depth and quality of their asset portfolio and the reasonable valuation that attaches thereto.

I would not be surprised to see the SP make a brisk recovery and perhaps even surpass its previous level in a fairly short time - 1-2 years perhaps.

"...Tournesolf? He writes quite eloquently...so probably knows which is more correct...."

What I regard as totally incorrect is nit picking about other people's language. When that other person is someone who constantly and consistently adds such incalculable value to the discussion as Marben, the nit picking is not merely incorrect, it is unforgivable. And downright rude to boot.

Hi all,

I think, FWLIW, that it's "an SP" - because it is pronounced " an Ess Pee" - ie there is a vowel-like start to the S.....

Would you say "a SS officer" or "an SS officer"...?

alano2

But it sounds a bit strange....

At an SP of 625p as opposed to At a sp of 625p which reads better....

Maybe I'm missing a trick here, But I think At a sp of 625p seems more correct.

Anyone else have any views? Tournesolf? He writes quite eloquently...so probably knows which is more correct.

Thanks.

Bid talk swirls around BP as it nears final cap on leaking well

Fred Lucas, JP Morgan's London-based oil analyst, looked at whether Exxon was the right player to make an £88bn bid. The US group is the financially strongest oil company, he said, adding that it could make a cash and stock offer while spinning off $50bn (£33bn) of refining and marketing assets, resulting in a bid estimated at 473p a share.

Certainly BP is very cheap by historic standards. More than $100bn was wiped off BP's market value at one stage since the 20 April explosion.

The company has instructed Goldman Sachs and Blackstone to defend against any hostile takeover bids.

One City fund manager said last night that he expected Exxon, Chevron or possibly even a Chinese national oil corporation to make a move on BP but Fadel Gheit, veteran oil analyst with the Oppenheimer brokerage in New York, said he doubted the White House would endorse a takeover that would cost more US jobs.

http://www.guardian.co.uk/business/2010/sep/03/bp-mergers-acquisitions-oil-spill

FWIW my own views are as follows.

Taking (I believe) a conservative stance, I'd put the present value of direct costs of the spill at around US$30bn comprising US$10bn for the well containment & cleanup and US$20bn for liabilities/penalties. I believe that that's conservative, given that some of these will only be settled years into the future, so it is appropriate to apply a discount.

Then we have the impact of asset sales and reputational damage. Very hard to judge but 25% of the "undisturbed" market cap would seem a reasonable/prudent figure.

At an SP of 625p the pre-spill market cap was US$181m. Reducing by 25% yields $136m and knocking off a further $30m for spill costs yields US$106m, equivalent to an SP of 468p.

Hence my exit target is 450p (if reached in a short timescale, otherwise I''ll wait & see how the divvy policy looks next year before deciding). With an average entry price of the "crisis play" of 379p, that'd be a good return in a 6 month timeframe. Could have been much better, though, if I'd been more patient in the first few days of the crisis. There's a lesson for me for future crisis plays (which I've observed before and should have learnt from): things often turn out worse than appears at first when companies hit crises. Neverthless, even taking account of that, the market often overreacts at the bottom, so there is money to be made, if you enter & exit at sensible points.


I do take issue with a point ee made in an earlier post, suggesting that BP had been priced for growth whereas it is now priced like a utility. IMO it was ALREADY priced like a utility pre the spill, with a P/E around 10 and a yield of over 5%. In that vein, thought I'd take a look at RDSB now, by comparison. I was quite surprised to find that it is on a current year P/E of 8.8 and yield of 6.3%. [2011 figures 7.6 and 6.5%].

I think I ought to add a few of those to my porty as a nice solid yielding stock, rather attractive in the current low interest rate environment. One to tuck away & enjoy the yield from, or sell if the yield becomes less attractive :0)


Can we draw a close to the "thumbs" discussion on this thread, please? I have previously made a suggestion on that here, which would seem a more appropriate place to continue the ducsssion, if anyone wants to.

Cheers,

Mark

Not sure if this belongs here:
BP Replaces Oil Well's Blowout Preventer
http://tinyurl.com/33r2pce

Does my post #560 really warrant multiple thumbs down?

QED I think

T

The point I was making about asset sales is that it looks as if BP is achieving sales prices which are considerably higher than the casual estimates of outside commentators

Trouble is that in these situations companies usually sell their most undervalued assets first because it forces up the value of the remaining ones and looks good and so boosts their share price (based around what you have written). They are usualy the quick and easy ones to sell fast (as they are in demand). It wouldn't look good if they started off with a sale below book value which was hard to shift!

All that said plenty off asset backing.

Tournesol - I take your point. I don't actually think your and my opinion is that different. I posted at around 300p saying it was likely to be seriously oversold at that point and the well was about to be capped.

Considering that the pre-disaster SP was around 650p - a recovery to 450p or 500p is not exactly spectacular for those original holders but for those who bought in a 50% proft in 6 months would be very nice.

In summary I imagine a rise from 350 to 450 is likely to be a lot more rapid and probable than a rise from 450 to 550 and then from 550 to 650p.

B.

These negative recs are fun - I think I'm going to give one to everybody just for bothering to post.

Bugs

I haven't attempted a SOTP valuation myself (yet).  My belief however is that the market over-reacted into the blow-out, that many people indulged in panic selling and that the price fell far more than was warranted by the facts at that time. Seems to me that the facts emerging now suggest that the impact of the disaster will be far smaller than many of the views expressed over the past few months. I'd hazard a guess everything else being equal, the SP will recover to 500p in the near future. (12 months or so)

The point I was making about asset sales is that it looks as if BP is achieving sales prices which are considerably higher than the casual estimates of outside commentators. Which suggest to me that regardless of the sources of future growth the assets of the co are probably worth more than its enterprise value as it was pre-disaster. Which should support the SP recovery.

But its only my opinion supported by little in the way of detailed research.

T

http://uk.news.yahoo.com/18/20100903/tbs-bp-oil-spill-costs-surge-to-8-bln-8cc5291.html

Nigelpm,

yes I suppose it's a blunt guess regarding the SP but as others have perhaps more eloquently pointed out it is concerning where future growth comes from. You can't just suck out a year or two's worth of income and expect the SP just to pop back to where it was.

Tournesol,

In theory maybe but most organisations are more than a sum of their parts if they are working properly and if you suddenly sell off bits under duress it doesn't seem obvious how the group as whole copes. At a very minimum other investments and projects will be stalled.

I'd be interested to see what you value the rest of the business as on that basis


Crisis play,

Ideally a crisis play takes advantage of the market fear and over reaction, so once a significant recovery in SP occurs should you continue holding? Not so clear.

The prime mover here was the explosion and leak, once that is finally controlled to US government's satisfaction I expect the SP to find a new level which reflects that, a little higher than here. A finger in the air - around 420-460p

Nobody died and no oil leaked though thank goodness.

Log

Reports of a rig on fire in the Gulf of Mexico following an explosion, belonging to Mariner Energy.

http://www.nytimes.com/2010/09/03/us/03rig.html?partner=rss&emc=rss

This won't help the cause for lifting the drilling moratorium.

SM

Isn't the main issue with BP now primarily one of where the growth will come from?

Obviously asset disposals will continue until they feel they have a comfortable cash position to deal with expected evntualities - but where is the growth going to be?

There is a difference between investing in an integrated oil company that has a clear strategy for growing shareholder value and investing in a temporily undervalued utility........and it seems to me that BP is now more of the latter than the former.

And, if that is so, shouldn't a quasi-utility trade at a discount to where the former growth-oriented company would trade?

Doesn't the continuing drip drip drip of asset sales/disposals help to clarify the value of the co on a sum-of-the-parts basis? Doesn't it emphaise just how much the co's assets are actually worth on the open market as opposed to the current market cap which IMHO owes more to sentiment and fear than it does to a realistic assessment of value.

I'd concur with not knowing the financial position - I'd personally hope that, in addition to the major sales of non core assets, these small asset sales(such as the German businesses announced ) are part of a general tidying up exercise and a refocusing of BP.

Only time will tell but I personally believe that, once the well is killed, and both the total liabilities and their apportionment to other parties is known, that BP's significant firepower,and resumption of dividends will lead to a significant revival in its share price. Underpinning this is the continued bid speculation should it fall back to sub 350.

yes I bought a few more* yesterday = a tad too soon but I'm very confident yhat in a year's time they'll have paid out handsomely.

never thought I'd say this but BP is now my largest holding