By Simon Hawkins, Managing Director, Omni Investment Research.
The first quarter analyst conference call by BP (LON:BP.) felt a little like visiting a sick relative in hospital – trying to process a mix of human emotion and the reality of a situation you really didn’t want to happen. It was a week after the explosion of the Deepwater Horizon and as Byron Grote, the company's CFO, came to the end of talking us through the numbers the call was opened up for questions. At that point we were all wondering if it really was 'ok' to ask about the things we were most worried about, like what exactly happened? How serious is the situation? How long until it gets better? And, the big one, despite being deeply concerned about the human tragedy we really did need some clarification on who's picking up the bill.
The questions were generally respectfully sombre and the answers confirmed and clarified that yes, BP is responsible for the cleanup and no, there was no third party insurance so the company is basically liable for everything. Inevitably, as questions got deeper, we got fewer answers as the company still had limited information. As I type, we are another couple of weeks into this, BP has had $30 billion wiped off its market value and there are still a lot of unanswered questions.
The growing slick threatening the Louisiana shores has become a metaphor for the dark shadow the incident has cast across the whole sector. We have a little more information about what caused the accident and, as companies appear before two US Senate panels, some initial finger pointing has started. But we still don't know just how bad this catastrophe is going to get and, critically, how BP is going to stop 5,000 b/d from further devastating the ecology and economy of a beautiful coastline, which I now feel lucky to have enjoyed on holiday just a few months ago. A number if things still don't add up and probably won't for some time. For me, the biggest question is this: if BP has all the right processes in place, how can a leading company in an industry that prides itself in the way it manages risk, fall down what today seems to be a bottomless chasm of exposure?
Zooming out, is it possible this kind of exposure exists right across…
