Wednesday, June 9, 2010

BP (NYSE:BP) Bankruptcy Fears Heighten As Market Value Drops Below $100 Billion

Share price of BP (NYSE:BP) continue to plunge, increasing concerns they may end up having to declare bankruptcy to survive the financial and reputation devastation coming from the oil spill in the Gulf of Mexico.

Other worries from shareholders, which include many pensions and institutional investors which had counted on the success of BP for their own financial success in the years ahead, included cuts in the dividend, and continual loss of value in their holdings in the company.

Since April 20th, the giant oil company has lost 47 percent of its value, seriously affecting shareholders of many stripes.

Those watching the situation say liability could reach as high as $40 billion before it's all over for BP, although that even could be a low estimate based on many unknown factors at this time.

If it becomes too much, there will be a lot of losers if BP ends up having to declare bankruptcy.

38 comments:

Anonymous said...

How does this garbage get on to Google?

It seems anyone can setup a blog and get their feed notice on finance.google.com.

Seriously given the quantity of cash the company generates even if every short seller borrowed as much money as they could do short sell the stock to '0' BP would survive.

Meanwhile you have to wonder if GS is trading against its own clients TBH.

Even the figures don't add up in this article. Even upper end total damages of $40b is substantially less than the total fall in value of the stock.

When considering total liability it's worth reading the Oil Pollution Act of 1990.

More info at:
http://dealbook.blogs.nytimes.com/2010/06/07/looking-for-liability-in-bps-gulf-oil-spill/

Anonymous said...

If the two American socialists, Anderson Cooper and Barack Obama would shut up for a few days BP would be fine

Anonymous said...

First poster has it correct. Ultimately, BP continues to generate loads of cash (about $35 billion per year), share price has nothing to do with bankruptcy. I believe they will announce a share buyback in the near term, BP has nothing left to lose at this point since they have been pre-convicted by the government. All the mindless rhetoric simply creates buying opportunities for those with a mid to long term outlook.

Anonymous said...

Whatever legislation is presently in place, such as the Oil Pollution Act of 1990, investors in BP have to be worried that new legislation will be passed and will be made retroactive to punish BP more than present law permits. After all, the Gulf disaster is unprecedented, and BP will be made to pay to the nth degree, one way or another.

Anonymous said...

If the two American socialists, Anderson Cooper and Barack Obama would shut up for a few days BP would be fine. ( correct ) Why Obama don't say the other company in US will going to worst. I just bought BP and wait for other timing to but more. sweet.

Anonymous said...

Second non-credible bankruptcy blog rumor on Google in 2 days. WTF? I'll go back to yahoo. Stock price is dropping because of fears of a dividend cut, not bankruptcy. Furthermore, the discussed dividend cut is politically motivated, not financially. Even if the costs reach the upper estimates of 40 billion this will likely be spread over many years. BP made a little under 6 billion last quarter...they will be fine. Aside from the fact that, like it or not, America needs them. It would be in the worst interests of the general public to fine BP into nonexistence. Regardless of the governments propaganda, they know this. The threat to BP as a going concern is hardly credible.

Anonymous said...

hahahahha yeah right

Anonymous said...

Does anyone really know what will happen? I think that's what's driving the stock down, uncertainty.

Sure, BP can afford to pay for these costly damages and does not need to go bankrupt.

But the reality is that the stock market is a game where Wall Street insiders decide how it ends. I have no idea what they will decide will be most profitable for them. Meanwhile, I have already lost too much :(

Furthermore, there's brand reputation. Exxon had a bad one for many years after the spill.

Mr. Foo said...
This comment has been removed by the author.
Anonymous said...

Mr Foo: If company declares bankrupty, then the stock goes to 0. That's what it means, common share holders lose evertyhing. Although I don't think BP will go bankrupt.

Anonymous said...

BP die, die, die!

Philip said...

BP is not an American company. The U.S. government does not have the power to drive it out of business. If necessary it can just abandon all its American operations and continue to operate elsewhere.

Mr. Foo said...
This comment has been removed by the author.
Anonymous said...

What is the point of cutting the dividend? All that is going to do is prevent the US Treasury from collecting the income tax on the dividends received by BP's US-taxable shareholders. I don't know what percentage of $10.5 Billion that is, but it has to be a lot... Ridiculous!

Anonymous said...

Has anybody ever head of Insurance. BP's realized losses will likely be a fraction of the "total cost." Business buy insurance to prevent a catastrophic loss such as this.

DeadFrog said...

What a load of bollocks!

Anonymous said...

"Investors in BP have to be worried that new legislation will be passed and will be made retroactive to punish BP more than present law permits"
You would hope the US doesn't behave this way. This would put off a lot of foreign investment into the States... it's a scarey world where laws are rewritten to make people guilty of crimes they had no way of knowing they were committing because the law didn't exist yet.

If they did and the US sought to completely wipe out BP's operation in the US; I believe BP are exposed to about 40% of their market cap to the US.

This would make then - since the disaster; and taking into account declines also in the market generally - BP at a fair price today.

ONLY if a company needs debt to finance itself does short selling it's stock to zero result in bankruptcy.

Given BP's strong cash-flow they coudl survive a tremendous amount of short-selling before they go bankrupt.

Unlikes Lehman Brother's and financials generally you can't bear raid an energy company in the same way. BP is not leveraged to the same degree as these companies.

If all US companies and individuals decided never to lend BP another cent... I'm sure other investors would still be interested. Maybe the Chinese?

As long as we consume oil and make things with oil and legal property rights continue (even if they're torn up in the US and government illegal confiscates BP's assets...) BP will surive. It is a global super-major producer.

ratethatcorp said...

made $7000 so far by buying puts! Go BP!!

Anonymous said...

Cutting the dividend might be a good PR move for BP.

Also if a situation arises where the financial markets literally gang up on BP and refuse to lend them money at decent rates (a bit like they did with Greece) BP probably wants to keep as much cash free as possible.

On the other hand paying the remainder (particularly painful to short sellers) would demonstrate BP's financial strength; and indeed help compensate the MANY pension funds (that is hard working people's money saving for retirement; not speculative short funds) who's savings will have been damaged by this event.

Honestly if the US does rewrite laws so they can fine BP amounts beyond those currently legislated... ultimately the losers are soon to be pensioners; particularly pensioners in the UK where a lot of pension funds invest in BP.

Anonymous said...

mean while the big 3 car manufacturers create cars to polute this world for the last centuries and nothing is said about that... go figure... I'd like to compare the damage done by cars in the US versus this spill... only thing is with cars that c02 leak only gets bigger every year for the poast 100 years...

Anonymous said...

everyone will see...federal government (ie taxpayers) will clean this up...BP has too many high connections and will limit its exposure to this issue just like XOM did with the Valdez issue...buy buy buy this all the way down

sex toys said...

Bankruptcy? wow, that's such a speculation.

Anonymous said...

i shouldnt even comment,eccept to the administrator to remove this garbage.

Anonymous said...

Apparently you aren't taking the pending SEC investigation against you (the authors of this and associated Dripping Oil blog) seriously. Have you heard of Libel?

dustintellier said...

BP was self insured, so unlike other companies who would have limited losses, BP bears the losses themselves. No biggie though because they make billions a year. Now is the best time ever to buy. Whoever started the rumor that BP is going bankrupt is either an uneducated oaf or a sneaky bastard trying to bring down the price before going all in. In either case I say you should just smile and buy some more BP if you haven't already.

BP Atlanta Shareholder said...

This a poorly titled article. Bankruptcy fears for a firm generating multi-billion in free cash flow is difficult to believe. I am certain articles as such do help depress the share price in the open market.

Here is some food for thought:
As share price declines for a firm that is a cash cow, they likely become target of an acquisition or leveraged buyout. In my view, I do not see anyone doing a tender offer at a time like this given the heat around the oil spill and negative publicity.

I read a few posts, some good, some poorly written, and others completely incorrect.

Here are my thoughts:

1) In order for BP to even think about bankruptcy, there has to be ton of government intervention which will limit BP's future potential. With credit rating still high and the cash the firm generates, the potential of a BP claiming bankruptcy is next to nothing in the near future.

2) I haven't verified this for long but BP carried small amounts of Debt. So that means as long as operation stays solid, BP has plenty of ways to finance the cost for this oil spill. I am more concerned about the legislation that will get created due to this oil spill and its impact to industry and BP specifically.

3) Now it is understandable for BP's share price to decline since as a shareholder, we are obligated to pay for oil spill, hence taking away from our returns, but a decline of the share price to this extent is not justified.

4) Lastly, I am sure BP has a lot of smart guys who will look to optimize capital structure to gain from tax shields to limit the loss to share holders.

So, in conclusion, I am not recommending to buy or sell but I am saying that BP is a solid company and like many pointed out, in USA we are heavily dependent on Oil and hate when price of oil rises. :)

Anonymous said...

This a poorly titled article. Bankruptcy fears for a firm generating multi-billion in free cash flow is difficult to believe. I am certain articles as such do help depress the share price in the open market.

Here is some food for thought:
As share price declines for a firm that is a cash cow, they likely become target of an acquisition or leveraged buyout. In my view, I do not see anyone doing a tender offer at a time like this given the heat around the oil spill and negative publicity.

I read a few posts, some good, some poorly written, and others completely incorrect.

Here are my thoughts:

1) In order for BP to even think about bankruptcy, there has to be ton of government intervention which will limit BP's future potential. With credit rating still high and the cash the firm generates, the potential of a BP claiming bankruptcy is next to nothing in the near future.

2) I haven't verified this for long but BP carried small amounts of Debt. So that means as long as operation stays solid, BP has plenty of ways to finance the cost for this oil spill. I am more concerned about the legislation that will get created due to this oil spill and its impact to industry and BP specifically.

3) Now it is understandable for BP's share price to decline since as a shareholder, we are obligated to pay for oil spill, hence taking away from our returns, but a decline of the share price to this extent is not justified.

4) Lastly, I am sure BP has a lot of smart guys who will look to optimize capital structure to gain from tax shields to limit the loss to share holders.

So, in conclusion, I am not recommending to buy or sell but I am saying that BP is a solid company and like many pointed out, in USA we are heavily dependent on Oil and hate when price of oil rises. :)

Anonymous said...

BK .. BP!!!!!!!!!!! SURELY
we want to give all our $$$
away to US COMPANIES.. so
they can put any FOREIGN CO.
out of biz.. AZ.IMMIGRATION NOW
is being applied to COMPANIES..

"isolationism"

girlsgonemild said...

If the courts can demonstrate that BP did not follow proper safety procedures, then the limited liability of the oil pollution act goes out the window, and they can be sued into bankruptcy.

BP does not have insurance for this. Obama also has the authority to seize control of the company since it is posing a threat to US land.

Anonymous said...

To the Anonymous that stated they have insurance for catastrophic loss, most oil companies, including BP are self insured.

Anonymous said...

This risk is not insurable as no insurance company could appropriately measure the risk. As such, this liability will come out of BP pocket.

ricardo said...

Look at Exxon spill. Statutory damages were about 5 billion (1 year of ernings for exon at the time).
Via court appeals they have only paid 10% of 5 billion and will probably never pay the rest. Look at Exxon today versus stock price then...

Anonymous said...

transocean operated drilling rig contracted by BP not owned by BP

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