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I'd be curious with your opinions on BP, which is getting pounded mercilessly and with good reason. Of course, whether BP is a value stock at these levels depends on how much liability BP faces. The worst case scenario so far puts BP's final tab at $15B but BP has lost $70B in market cap. Comparable oil stocks have lost some value of late, so the entire loss in value cannot be attributed to just the oil spill.

It seems to me that BP still faces a lot of headline risk and perhaps even more important reputational risk. One report today suggested the stock's hefty dividend could be suspended until BP cleans up the oil spill. Investors may also be simply sick of owning BP.

If the market overreacts to the troubles facing BP, it may become value priced. Question is: at what price would you find BP interesting, given all the risks the company faces?
 

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For me, it's not price but timing. I really don't think they're reached bottom, no pun intended. They have an enormous task before them, and they do not appear able to solve the problem. They're talking about August now. People are losing patience. A lot can happen in two months.

My own opinion would be to sit tight at the moment and keep tabs on what's going on for the next 3 months.
 

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I'd be curious with your opinions on BP, which is getting pounded mercilessly and with good reason. Of course, whether BP is a value stock at these levels depends on how much liability BP faces. The worst case scenario so far puts BP's final tab at $15B but BP has lost $70B in market cap. Comparable oil stocks have lost some value of late, so the entire loss in value cannot be attributed to just the oil spill.

It seems to me that BP still faces a lot of headline risk and perhaps even more important reputational risk. One report today suggested the stock's hefty dividend could be suspended until BP cleans up the oil spill. Investors may also be simply sick of owning BP.

If the market overreacts to the troubles facing BP, it may become value priced. Question is: at what price would you find BP interesting, given all the risks the company faces?
15 billion cleanup tab, looking at the financial statements it sorta looks like a no sweat cost for them.

according to http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/set_branch/STAGING/common_assets/downloads/pdf/BP_Annual_Report_and_Accounts_2009_Financial_Statements.pdf

suspending dividends to stockholders for a year, and cutting capital expenditures by only 25% for one year will cover a 15 billion cleanup cost.
Company also doesn't appear to be servicing a massive amount of debt even if they have to use current earnings to clean up. plus they have another 8.3 in cash equivalents.

if they couldn't cut expenditures by 25%, they could also issue some bonds, or dilute the common stock to raise some cash.

lots of options for them to shake this crises off.
 

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cc imho the situation is not comparable to when you nailed the low in shoppers with a perfect 30 (30 dollars 30 april.)

i did observe pundits recently saying buy as bp hovered between 40 & 45.

now it seems to be off all maps. Somebody - british analyst - reported as saying this am that bp has a death smell to it.

shoppers' rout was orderly, anticipated. My neighbourhood SC pharmacist told me he'd been planning economies & hour scalebacks for months. By contract, the stampede out of bp is like one of those soccer mobs where people get crushed to death. I for one wouldn't go near bp at any price until there is some clarity.

but i think we should all take note of cc's call. Like the 30/30 it's easy to remember. This one is june 1/37.
 

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a current stock price of $37.14 against a 2009 diluted EPS of $88.49? Is that right? something is not adding up.
Well, if you read the annual report, that was given as cents per share, i.e. EPS of $0.88. The US-traded ADRs are each worth 6 BP shares, so the ~$37 figure is off EPS of ~$5.28 (the first bit of 2010 must have been good since Google is reporting $6.36).

There's a lot of uncertainty in the air right now, which tends to breed good value opportunities... however, this is an unholy mess they've caused, and direct cleanup costs, lost reserves, and punitive damages could be massive (and are still ticking up since the leak has not yet stopped!). I couldn't tell you at what price BP might become attractive, but I doubt the US courts could drive them right into bankruptcy, so there should be some bottom to it. Somewhere.
 

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First compare to history:
http://en.wikipedia.org/wiki/Exxon_Valdez_oil_spill#Litigation_and_cleanup_costs

Exacerbating factors:
1) Exxon Valdez disaster cost approx $5B. BP disaster is almost certainly several times worse.
2) Political green movement likely to pressure government to take excessive action like dramatically increasing penalties retroactively
3) Current uncertainty over how the well will be plugged
4) BP has lost a lot of oil that could have been sold, and it will be very difficult for them to return the well to production.
5) Potential divided cut to fund cleanup costs

Mitigating factors:
1) BP was not entirely to blame. Transocean owned the rig, BP likely had partners on the well which may share a significant portion of the cost.
2) BP will recover some of the cost from insurance (the limit of liability is uncertain and probably insignificant compared to BPs total cost)
3) All BP's costs are tax deductible
4) Costs will be spread over many years, and the highest concentration of cash outflows will be right now as they plug the well, and many years in the future when the final court decision is made.
5) BP's financials are strong, and they have the ability to raise enough cash to fund the cleanup costs through asset sales, dividend cut, or stock or debt issuance.
6) New tax on all oil companies will pass the cost on to consumers while appearing to bill the oil companies. In order for BP to be penalized, the cost would have to be levied against BP only.
7) Downside price protection from dividend % yield (currently 9%), potential buyout by other oil companies, and Book Value per Share ($33).

Predictions:
-Dividend will be reduced temporarily.
-Price will continue to fall short term
-Government will raise the limitation of liability for oil companies retroactively to a surprisingly high amount
-The final bill for BP will be far less than anyone anticipated
-Life will go on and BP stock price will rise again, and deep sea drilling will go on under higher safety restrictions.
 

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What Max said.

This is a total PR disaster for BP, they are the headline company here, the target. They also managed, with some help, to hamper future offshore drilling which will impact future returns. So that hurts their output, but big whoopdeedoo all they do now is jack up the price to compensate.

Don't bother buying this POS until the storm starts blowing over, I'd guess you'll get it well under $30 and possibly under $25 before the worst is over. One thing investors don't like is a dividend cut, so even the ones with no conscience will run for the hills at that point. My interest would peak under $20, til then there are many other better investments to occupy time and money.
 

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Related article in today's NY Times:

http://www.nytimes.com/2010/06/02/us/02liability.html

It's funny, before the spill BP was generally regarded as the greenest oil company on the planet. And it's worth remembering that, like pretty much all the other major "oil" companies, BP is actually a diversified energy company and petroleum is just one part of its business.
 

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@humble: I'm not buying (I didn't buy SC either) BP. I'm just putting it on my watch list for my play money. BP is facing huge risks -- the Globe reported on the front page that BP may face criminal investigation. In the past, it has been profitable buying huge corporations in legal difficulties. Philip Morris (state lawsuits, punitive damages in civil lawsuits), AIG (surrounding Hank Greenberg's expulsion), Merck etc. were all buying opportunities when they were in the midst of their legal troubles. I wonder if that's the case with BP now.
 

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I would invest in other energy companies that have been pounded at the same time and have no offshore drilling ventures in the US. At least we know that they're not actually responsible for the spill and they would not be affected by no legislation.
 

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First compare to history:
http://en.wikipedia.org/wiki/Exxon_Valdez_oil_spill#Litigation_and_cleanup_costs

Exacerbating factors:
1) Exxon Valdez disaster cost approx $5B. BP disaster is almost certainly several times worse.
2) Political green movement likely to pressure government to take excessive action like dramatically increasing penalties retroactively
3) Current uncertainty over how the well will be plugged
4) BP has lost a lot of oil that could have been sold, and it will be very difficult for them to return the well to production.
5) Potential divided cut to fund cleanup costs

Mitigating factors:
1) BP was not entirely to blame. Transocean owned the rig, BP likely had partners on the well which may share a significant portion of the cost.
2) BP will recover some of the cost from insurance (the limit of liability is uncertain and probably insignificant compared to BPs total cost)
3) All BP's costs are tax deductible
4) Costs will be spread over many years, and the highest concentration of cash outflows will be right now as they plug the well, and many years in the future when the final court decision is made.
5) BP's financials are strong, and they have the ability to raise enough cash to fund the cleanup costs through asset sales, dividend cut, or stock or debt issuance.
6) New tax on all oil companies will pass the cost on to consumers while appearing to bill the oil companies. In order for BP to be penalized, the cost would have to be levied against BP only.
7) Downside price protection from dividend % yield (currently 9%), potential buyout by other oil companies, and Book Value per Share ($33).

I believe BP was self insured on this particular project.

I think that they're going to get nailed with the remediation costs for many years down the road. For instance here in Canada companies do have to go back to their (abandonned) wells, and sites years down the road to bring them up to current code.

Although I am aware that most US states have a Orphan Well/Site fund for when companies have gone under/sold/folded/etc. and there is work needing to be done.

Ultimately I agree with most predictions here; short term declines, with some long term recovery. I doubt the bottom will fall through on this one, but it will result in some large scale (probably only in the US) changes to drilling requirements, disaster mitigation planning, and there will probably be a severe limitation on offshore drilling in US waters for the foreseeable future.

Yet BP is still actively recruiting employees, but now they're offering bigger salaries and benefit packages for new hires.
 

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I am considering selling Jan 2011 puts with a strike of $32. Right now they are $4. A quick $4000 for 1000 shares or I get the stock for $28 if it goes below 32 by Jan 2011. The most I can lose is $28k if it goes bankrupt.
 
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