Buy or Sell: BP

In a few short months, BP stock has lost over half its value and rumors of everything from takeovers and bankruptcy to lynch mobs roaming the countryside seeking the scalp of Tony Heyward, are running rampant. The next corporate entity in a growing line of scapegoats for the incompetent Obama administration, is considered radioactive by most analysts and investors at this point. Should this really be the case?

I would argue that the future outlook for BP remains solid, based on its cash flows, overall financials, expansive operations and most of all, the fact that 1/3 of English pensioners depend on it for their daily tea and crumpets. I should say, Charles will stoop to pimping out the Queen Mum sooner than the Labourites will allow the "Crown Jewel of the Empire" to fall. So, I ask you my fellow poop flingers, how many of you have, or are considering, putting your money into BP stock? Is this the right moment or will that moment never come?

In a recent article for The New York Times, Professor Steven M. Davidoff rationally lays out and discusses the potential doomsday scenarios for the embattled firm. In it, he strikes down much of the hoopla which has resulted from the spill and sticks to the reality and legalese of the situation. This is one of the best pieces I have read on the subject and I think it is really a shame we don't see less panic and more logic in situations such as this one.

 
Best Response

I used to think BP was a solid buy, that they would recover just like Exxon, but a couple things worry me now.

1) This is far worse than Exxon. It is in an extremely lucrative area of the country (we derive around 18% or something of our fish from the Gulf), it has no end in site and weather conditions could royally fuck us. Exxon has a finite amount of oil (whatever was in the tanker) while this is almost infinite, Exxon was on the surface of the water, this is deep underneath and weather conditions are not as volatile in Alaska as in the Gulf. They had to shut down the rig taking recovered oil for 12 hours because of lightening, just wait until a hurricane hits. Just wait until those huge oil plumes start moving around. Epic fail!

2) Obama has show a propensity for making rules up as he goes. This is a perfect storm to push alternate fuel or increased taxes. I think he is going to milk it for all it is worth. You used to be able to calculate legal costs or losses because of liability limits, but I could see it being entirely reasonable for them to retroactively raise the limits or do away with them. Either way, taking over BP at this point is like inviting the plague to come live with you. I think people will stay far away until things settle down.

Side note, I hope the current administration understands that whimsically changing rules as you go to punish or reward is real great for getting votes, but sucks ass when it comes to inspiring companies to invest and hire in this country. Dem's are never pro big business, but I have never seen someone so ANTI big business. Holy shit.

 

My last comment was intended for Monkey Math, btw.

Tone,

I hate to beat the socialist drum all the time, but do you see any kind of actual practical logic in what these fools in Washington are doing?. I get that votes are important, but I refuse to believe that there are actually that many welfare babies of voting age to keep this charade up. In fact, the ramifications can be far more reaching then simple economics.

That having been said, your points are excellent and explain current sentiments well. Still, I think that at this point BP failing is equivalent to England failing. I don't see that happening. Lengthy, possibly eternal malaise, OK. Failure...I'm not ready to go that far as of yet.

Adding to that thought, the British government has made BP annuities quasi-social security type mechanism. Showing the exact ideological mirror of the "progressives" in the US, raping big companies to pay off government errors. This goes to show once again that when two tax-reliant, tax-worshiping entities try to come to an agreement...somebody's ass has got to get taxed!

I find it ironic that 20 years after the fall of the Berlin Wall, it is Western Europe and the U.S. which are exhibiting old school Marxist approaches to doing business.

Where's Joe McCarthy when you need him?

 

I think it is this. We have become a nation of individuals who feel as if they are continually victimized. We crucify wall street instead of educating the people on why banking helps them. Obama is simply the embodiment of this opinion. There is a reason why we are a republic rather than a pure democracy. The people are acting likes fools and instead of listening to their most base desires we should be showing them how these desires will hurt them.

I could rant on and on, but it just makes me sick. A nation of give me more without any cost to myself. Gotta pay the piper eventually.

 

I would avoid BP and would instead focus on one or two of the oilfield services names. There is going to be more oversight in drilling projects, and its likely that the cost of the services will increase. If you're confident that offshore drilling isnt going away (which it's not), I would consider the space. For example, offshore drillers with the newest and state of the art rigs have new BOPs and other top of the line equipment. If I were XOM or PBR drilling a well, I'd rather contract with someone with 4 new BOPs on a rig instead of someone with an older fleet that may have 10yr old (or no) BOPs. Maybe instead focus on NOV....they make the lion's share of oilfield services equipment (CAM, FMC also make top notch equipment). Once drilling in the GOM picks back up, though it could be 12-24 months down the road, expect an increase in replacing old parts/rigs.

While I'd like to think that BP isn't going to be toast, I think they have limited upside potential because of the cost and time that will be associated with the cleanup. Additionally, all of their other drilling projects are already having significant higher scrutiny. May make more sense to invest in Anadarko....they are beat down and have a better shot at avoiding some of the lawsuits.

 

Tone,

Let me repeat. As you will surely get sick of reading me post: WW2 ended, the entire fucking planet was in shambles, we made out like fucking bandits, we built a (dare I actually type this) "Grrrrr8 Society" and then we started (as you rightfully say) "playing the victim", don't know why, can't understand how...it took a while but the people who spent their days eating handfuls of rice and drinking spoonfuls of piss water started thinking "maybe I can have filet mignon and pinot noir"...that is where we are now...a bunch of whiny little hoes, complaining about being slapped too much, without ever having experienced actual life "on the corner"...competing with a bunch of smart, hungry and determined people...and naturally, having to relearn all that the founding fathers gave us at birth on silver platters...

Come to think of it, you're right. Let me not rant on. Another day bites the dust. Another American patriot is sacked for not ignoring his testicles and somewhere...a monkey spits out another DCF and hopefully another gets his wings:)

 

BP is facing huge uncertainties right now. The initial 20 bil agreement saw the stock jump up on open like a bunny in heat. Then they just randomly get billed another 50 by everyone's favourite president. There's just absolutely no visibility into the company's liabilities at all. Then you have your boy Tony off yachting on the weekend... are you f***ing kidding me.... yachting... Might as well just have been jerking off into the Gulf and put it up on youtube.

Owing to this massive public condemnation of the company, fund managers don't want to have to tell an outraged investing public that they hold on to such an "evil" and risky company come quarter end. Last time I checked, this window dressing is seeing the ADR down a bit more than traded here in London. Obama's just milking the hell outta this to try to salvage any little public support he may have left. I personally believe this whole thing is blown too out of proportion and there's very little chance that BP will become insolvent, but it definitely won't be trading up to 600 anytime soon. Having said that, I will probably put in a small punt next month after the ADR has gotten punished a bit more.

 

CAM made the BOP, but it was over 10 years old. Additionally, CAM had not serviced the BOP since they sold it to Transocean. Like going to a local car mechanic, it's much cheaper to have a BOP serviced/repaired by a smaller mom & pop compared to having CAM perform regular maintenance or for Transocean to purchase a new BOP from CAM. I think CAM will fair well because there is going to be a flight to quality....again, if you are Exxon, Petrobras, Total, etc, and you are paying $2MM + a day for an offshore rig, fluids, offshore supply vessels, and WFT/HAL/SLB service, then you will pay an extra few thousand a day to contract with an operator that just purchased new rigs or at least new BOPs.

Back to BP - There is still the risk that the two wells that are being drilled to kill the leaking well will not work. This would be the case if the well was mangled under the seabed & oil is leaking outside of the well. So instead of one leak from the casing, oil would in fact be leaking from the reservoir in multiple spots. While this is a doomsday scenario and I hope this is not the case, it would be the end of BP and would screw up GOM drilling for years.

I'm not sure if any of you all have access to MS equity research (MS' weekly oilfield service research), but they put out an article last month saying that in the best case scenario, deepwater drilling in the GOM will resume in 8-12 months...likely case is 12-24...doomsday is 24-48 months (I may be slightly off on the # of months, but the article was shocking and well supported.

 

I bought it at 34 and thought it had to be at rock bottom. The company you are getting at current prices is amazing. The potential liabilities and uncertainty, which in my opinion are way overplayed, are just beating this stock to the ground. Once they pay the $20 billion, there's still $60 billion in company value to be made up. I'm just praying Obama won't fuck it up any more trying to win votes and such, because this stock should truly be trading at $50 even with the spill taken into account.

 

"Scapegoats for the incompetent Obama administration"

Can't you anti-Obama propagandists stop peddling your bs in what might otherwise pass for legitimate posts? The spill wasn't the administrations fault. Yes, BP is being pressured (you could say squeezed) for as much money as possible by the government, but what do you expect? It's BP vs. the taxpayer to see who's going to pay for the spill, and as a politician, of course you're siding with the taxpayer - voter.

BP would be within their rights to claim limited liabilities based on the law - they haven't. Why? Due to the fear of public opinion. Not Obama's fault BP is pussy/ has made a calculation that it's better off trying to minimize the anger by rolling over and doling out the cash. I personally doubt this is actually the best course of action for the interests of the company. However, its the company's responsibility to protect its own interests and its fault if it doesn't

 

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