Thursday, 24 June 2010

BP Update: All downside risk

The BP share price is down to £3.30 today, another new low. This is the level that two weeks ago I thought would be a a good buy in point.

But the news is no better, the flow of oil continues, mistakes are still being made. The US Government thinks even the relief wells may only have a 50% chance of success.

Until the newsflow is going to improve why buy this share, sentiment is going to take it down. if anything, I am considering a short position from here, looking at £3.00 for a close - a psychological level.

BP may not survive this crisis, too many US lawsuits to fight and if the oil keeps flowing into September then I expect the US Government will stat talking conservatorship again.

Who would have thought the UK's biggest company could end up in this state so quickly?

21 comments:

Budgie said...

"Who would have thought the UK's biggest company could end up in this state so quickly?"

That is because most big organisations are political entities. The technical people get brushed to the side as the lust-for-power managers backstab their way to the top.

Botogol said...

Yes. And BP haven't replaced Hayward yet, from which I infer that they think things are going to get still worse..

Cynical Bloke said...

What think ye of the claims in this article re the oil spill and it not being the death of BP?

http://market-ticker.denninger.net/archives/2436-Uh-Huh-So-It-IS-A-Liability-Limiting-Thing.html

Steven_L said...

Come on, target price £1, or 10p even, remember talking about HBOS and RBS in early 2008?

CityUnslicker said...

CB - BP are self-insured so there is no limit to their liability. A legal attempt to create one will lead to US law changes - this is bad for BP, real bad.

SL - It is certainly possible, depends on the events with the Well. IF they close it and sack Hayward the same day it will be ok, even $50 billion is only a couple of years without a dividend. As I say in the title though, the risk is all on the downside.

Dizzy Ringo said...

First there was BP's enthusiasm for the cap and trade policy pre 2008 and then there was their contribution to The One's election campaign.

I seem to remember something about supping with a long spoon.

Electro-Kevin said...

What does it all mean for our economy ?

General McChrystal has basically called his Commander in Chief a wanker and done so very publicly ...

Obama has an ego to restore and a dick to swing - who better to swing it at than the 'no good' Limeys ? And this at the very time when America's President is a negro ! How very unfortunate for us.

God truly hates the British. What on earth have we done to deserve it ?

Electro-Kevin said...

We need Unslicker on the case !

Steven_L said...

"IF they close it and sack Hayward (CU)"

Who in their right mind would take a BP directorship? There must be dozens of US politicans, investors and fund managers planning on trying to take them to the cleaners!

If I was a BP director I'd resign right now and start hiding my assets in places US courts can't find them!

CityUnslicker said...

SL - they will move up Bob Dudley to the CEO role, he is in it anyway and being from the Gulf area will help.

Richard Elliot said...

I hope you are all wrong. I went long at 350p.

On the upside at least EMED has been on the move this week.

roym said...

BPs saving grace will prove to be the US public's still insatiable thirst for oil. hence the desire to get offshore drilling in the gulf up and running again. if obama tries to re-ban, surely the ensuing loss of earnings then falls on the US govt, so one less liability for BP.

EK, negro? seriously?

btw, just how many black swans have there been this year? Volcanos, big freeze, greece, BA strike (this last may be a stretch) and this?!

Andrew B said...

Hayward will stay on in some capacity until BP can announce some sort of 'win' (whether real or spun)

BP debt is at BBB and probably dropping. (I think CU noted) This makes their trading operation more difficult.

When the claims get to the courts, which will be in the states affected by the slick, with juries from that state,
with BP identified (fairly or unfairly) as a foreign company,
it really will be a case of 'think of a number and add some 000's on the end' ... and they will get it awarded.

In this situation the $20bn fund will probably be cheaper for BP.

I agree, it starts to look like BP the corporate entity might not survive.

Billions of shareholder funds have evaporated already, and many more probably will.

It makes you wonder how much such companies are really worth over and above their bricks and cables.

The question is, when does negative normal cashflow + likely claims amortised somehow > positive normal cashflow.

If BP fails, out of the ashes a new company will rise doing much the same things with the same people and equipment.

However, once can say that it probably will not be UK based.

Steven_L said...

"I hope you are all wrong. I went long at 350p" (RE)

As my only direct shareholding is in that other big dividend payer, Vodafone, I'm in two minds on this.

Evil me wants them to get drenched in the stuff, nice me isn't really enjoying the fallout.

CityUnslicker said...

Andrew B- I forecast (how wrong am I most of the time!) that some silly court in the US will see damages posted for $1 trillion or more.

Anonymous said...

If BP is effectively killed off by Obahma, who in their right mind is going to drill in US waters? Who is going to take a large tanker into US waters? Only a cowboy outfit, an unfunded company with no assets and no owner, oh and at a high price, roll on gas prices rises for the poor American consumer.

Anonymous said...

Just as well you didn't take your own advice and buy BP stock a couple of weeks ago then.

mark said...

A couple of points:

i) how outrageous are US shareholder lawsuits against BP for losses caused by the falling share price? Non US and US shareholders have all lost money so why should the non-US shareholders transfer yet further money to US based ones?

ii) If BP does go under perhaps the harsh lesson to draw from all this is that the US may be a country where the political, legal and economic risk is too great to justify the returns. An accident in the US has the potential to bring down a global corporate.

The US is a big market sure, but so is Asia and Europe and an accident in Asia or Europe is not going to jeopardise the entire company.

The US is out of control

The Administration doesn't respect the rule of law (e.g. demanding BP pay compensation sans trial, including to workers laid off as a result of the Administrations moratorium) and the courts don't seem to respect the corporate veil/limited liability.

The US must eventually pay a price for the way they treat those that do business there.

Savonarola said...

Apologies for saying "I told you so" when you were considering buying if shares fell below £4.

Buying unknown unknowns is rank speculation/catching fallen knife. BP as we know it is finished. It will either be taken over or become a second div producer.

At some point money will be made by buying the shares. But until we are able to make a guesstimate of the contigent liabilities the odds are not favourable.

In the meantime Chariot Gas has my money.

Cottswolds BB said...

I met an oil and gas health and safety consultant this morning who explained the technical story that had been released to date. There have been many mistakes, made by companies that BP will undoutedly sue to reclaim some of their lost billions: Endarko (25% owners of the project, Halliburton ( who sank the well), and Cameron (the manufacturers of the BOP). Theres always the chance of a US court awarding ridiculous damages, but that looks like the *only* risk to me.

CityUnslicker said...

Anon - I said I would look at buying the shares - my last post said, BP still not buying....

Mark good points- I think there are many in the US who are appalled. Having said that, perhaps we all need to think more about the risks we have in the companies we buy. A huge oil leak like this is harsh for BP - but not completely inconceivable.