Thursday, June 10, 2010

BP (NYSE:BP): Share Price Collapse Unjustified

BP (NYSE:BP) said today the collapse of their share price is unjustified, although at the same time saying the cost of the cleanup of the oil spill has surged to $1.43 billion.

For those unfamiliar with how investors and traders view companies in extraordinary circumstances, they look to the future of the company and make decisions on the value based on what they believe the future is for the company.

Then they either discount the stock, i.e. push the share price down based on those assumptions, or they can bid the stock up if they think the company has a great future. You also have to add the short-, mid-, and long-term outlook to get the overall picture of why a stock is trading where it's at.

This is why the share price of BP is falling, as people are discounting the future of the company and pushing the share price of the company down as a result.

BP said about the situation, "The company is not aware of any reason which justifies this share price movement. BP faces this situation as a strong company."

Although that is an accurate assessment, the question is how strong they're going to be a year from now and on, once the liabilities related to the oil spill are determined and have to be paid out.

That's what's driving down the share price of the company, not their current strength.

25 comments:

Anonymous said...

You are a fool if you think the liabilities will be sorted out in a year. More like 2 decades for this one

Anonymous said...

I think $1.43 Bil will turn out to be a conservative figure for the cleanup and this of course doesn't include litigation-related expenditures. There's also a case of BP being a stroke of the pen away from catastrophe, as the Obama administration will have to flex muscle to give the appearance of fairness and eco-concern. You also have the case for a double-dip and the broad market dragging on BP.

This far from over and any assumptions that BP is undervalued based on technicals, isn't planning to expect the unexpected.

Welcome to the new normal.

Anonymous said...

will be over 50years before this is sorted out

Anonymous said...

The company currently has "unlimited" liabilities so long as oil is still gushing by the minute.
1.43 billion is probably a valid number on the first few days of gushing, but this looks like it could continue probably for the next 3-6 months of gushing.

I wonder how much damage that can do to the entire gulf and probably even unforseen currents carrying oil to the rest of the world would do.

I think this could become a $20 - $30 billion problem very soon after litigation, criminal charges, amortization, restructuring blah blah blah ...

Anonymous said...

Gross/Wreckless Disregard?:No = no punitive.
Breach of Ordinary Care of a Reasonably Prudent Well Operator, Injury in fact, Cause, Proximate Cause, Reasonably Certain
Damages? = Maybe, but prove by a preponderance!

BP will pay, but not as much a those who do not know the law think they will.

Anonymous said...

Criminal Charges! you ae a fool if you think that will occur! the investigative probe is political for Obama to look tough.

Lucretius said...

Credit Swuisse estimated that BP's liability would total $23 billion and others have made even higher estimates. However, if it takes ten years or more to sort things out, then the payout will be similarly long drawn out and BP will not need to find more than $2 or 3 billion in any particular year. With a current cash flow of $31 billion, that is not going to be a very severe drag.

Anyway, the expenses will likely be spread among many parties and penalties imposed by the Government will be disputed and may be reduced or rescinded.

Anonymous said...

Are you paid by BP? or any way connected with it? The oil flow needs to stop, then there is cleanup costs, then there is other deep sea costs for measures that will be ineffective again costs, then there are all kinds of lawsuits, to add to all that CDS rates have risen, so the possibility of borrowing to pay off will be difficult. So they have to sell assets, which US Gov may keep in an escorw, so BP shareholders do not see a dime. Be long my friend because I am short and we will see in time who makes some mullah.

Anonymous said...

BP has insurance policies to cover such catastrophic event. No one knows the detail of this insurance coverage but BP is not fully exposed to the liabilities.

Jim said...

It took 19 years for the Valdez oil spill to be resolved. Quoting from Wikipedia: On March 24, 1989 ... [the Exxon Valdez] ran aground in Prince William Sound spilling 40,900 m³ (10.8 million U.S. gallons, 257,000 barrels of oil) of crude oil in Alaska. ... the Supreme Court which capped the damages to US$507.5 million in June, 2008.

Anonymous said...

Why is the U.S. govt denouncing private companies? Take them to court if they need to be taken but keep your opinions to yourself. The U.S. govt should have no opinion.

Anonymous said...

Well look at it this way. If over-emotional investors, government, etc decide to drive BP into bankruptcy then the cleanup costs would fall upon us. I personally agree with BP's statements that the fall of there shares is unjustified. As a long term value investor I would like to thank everyone however for the super cheap shares on this and TransOcean.

Arcticson said...

remember Union Carbide and Exxon Valdez? I don't recall many comments from the US on these disasters and not very stiff penalties .... I wonder why?

Anonymous said...

I think the criminal probe part of it is very real. It's definitely not posturing.

As to Insurance: I don't think they are insured against something like this. I don't think anyone in their right mind would attempt this insurance without truly knowing the size of that well compounded by the damage that a gush like that would do and the potential human factors and political issues that would arise

If there was any insurance, they would really push for the criminal probe because that would probably help the insurance of not having to pay for intentional criminal behaviors.

The future health, environment, and economic damage to an entire gulf coast in the US will be the real issue here.

PS: keyword is Future (which is yet to be determined) and the numbers keep ticking up

Anonymous said...

Tick Tick Tick ... BP ... tick tick tick ...

Anonymous said...

I think the past events of valdez while it does hold some merits, is actually different.

- the world was different back then
- human / political environment is different

- the media / social frenzy compounding effect wasn't as available as it is now. (Look at the underwater cameras). We don't see this back then

- people are definitely less tolerant these days

- potential of having the american portion of this company put into a receivership while this is being sorted out.

There literally is a risk to the company facing a collapse from this incident. I don't think that will be the case, but economic climate multiplied by the compounding liabilities could put this company into a zombie state.

Nathan Belomy said...

Oh yes it is "Justified." What is with the financial irresponsibility of companies today. The NYSE opened higher today because the US Federal Reserver manipulates the NYSE to ensure global economic's work according to their plan.

Their plan is to continue printing masses of fiat currency to raise inflation and decrease the USD value. Why? To create a trade deficit with China to reclaim trade.

If you look at various ratio's within economic valuations, you'd see we have a large situation on our hands. Unemployement Rates are some of the highest they've been ever, coupled with mass government spending, Trillion dollar bailouts and ridiculous spending on the US Government side all around.

The only reason entire world isn't in a recession, much less the USA is because of manipulation of currency, interest rates and the NYSE Stock Exchange by the US Federal Reserve.

Arcticson said...

At last some comments from a smart guy - but have a look at this link
http://www.petrostrategies.org/Links/Worlds_Largest_Oil_and_Gas_Companies_Sites.htm

If we knock out the "small" producers we in the West are totally in the hands of the East and Far-East suppliers... do we want to risk that? Stop knowing BT - in the UK we are all very angry about this disaster, but BP employs some 96000 employees - I think 30000 US ... and look what they gave Obama!
http://www.examiner.com/x-45717-Kansas-City-Political-Buzz-Examiner~y2010m5d5-Obama-fends-off-criticism-of-accepting-BP-employee-donations-in-2008

Anonymous said...

BP is one of world largest companies at this moment in time USA govermet shud not be fullish and ask for non realistic figures as penalties and Criminal Charges as during the years BP is significent income source for USA economy in taxis and jobs,as per insurance BP is vell positioned in insurance policies specialy when it com sea drilling as BP is wold clas companiewithin two weeks all this nonsense will be over ,speculators thats how they make mone?????????????

David said...

Anony: You know nothing about the drilling and production of Oil. You seem to forget, US cannot do without. Why “CRY OVER SPILLED MILK” LETS CLEAN UP AND MOVE ON………..You also seem to answer all the questions you post. Note: you are about the only one posting…….Interesting…Get a Life, invest in Oil service companies…..….As said US cannot do without…..Feds manipulate Wall Street. Why not benefit by it.
Oil Spills through the YEARS:
1. 1991-92 deliberate spill by Iraqi forces, 500 Million Gallons Spilled
2. Every Year 250 Million Gallons Spilled rigs and tankers.
3. 1979 IXTOC-1 (RIG) Gulf Of Mexico 150 Million Gallons Spilled
4. 1978 Amoco Cadiz (ship) English channel 75 Millions Gallons Spilled
5. 1967 Torrey canyon (Ship) S. England 40 Million Gallons Spilled
6. 1989 Exxon Valdez (Ship) Alaska 25 Million Gallons Spilled
7. 2010 BP Deepwater Horizon (Rig) n. Gulf of Mexico so far approximately 50 Million Gallons Spilled
Oil is Very, Very, GOOD to me….

Anonymous said...

Anony: You know nothing about the drilling and production of Oil. You seem to forget, US cannot do without. Why “CRY OVER SPILLED MILK” LETS CLEAN UP AND MOVE ON………..You also seem to answer all the questions you post. Note: you are about the only one posting…….Interesting…Get a Life, invest in Oil service companies…..….As said US cannot do without…..Feds manipulate Wall Street. Why not benefit by it.
Oil Spills through the YEARS:
1. 1991-92 deliberate spill by Iraqi forces, 500 Million Gallons Spilled
2. Every Year 250 Million Gallons Spilled rigs and tankers.
3. 1979 IXTOC-1 (RIG) Gulf Of Mexico 150 Million Gallons Spilled
4. 1978 Amoco Cadiz (ship) English channel 75 Millions Gallons Spilled
5. 1967 Torrey canyon (Ship) S. England 40 Million Gallons Spilled
6. 1989 Exxon Valdez (Ship) Alaska 25 Million Gallons Spilled
7. 2010 BP Deepwater Horizon (Rig) n. Gulf of Mexico so far approximately 50 Million Gallons Spilled
Oil is Very, Very, GOOD to me….

Anonymous said...

bp is self insured. so insurance paying this isnt an option.

David said...

If you read BP’s annual report, BP will be alright, just like Exxon. Note that at the time of the accident oil was at 70ish per barrel. Soon you will see the price of oil per barrel at 90ish. So do the math. BP will come out of this just fine. US GOV needs to lift the moratorium as soon as restrictions are imposed, just like Valdez. The sooner the better or it will have a great impact on job losses. Halliburton and Baker Hughes already said they will relocate Rig hands to other Countries that are active in Drilling. Not to be insensitive about the loss of lives and the impact it will have on our ecosystem, but TIME always works in mysterious ways. It will all come to an end, (the clean up) and we will all move on.

David said...

If you read BP’s annual report, BP will be alright, just like Exxon. Note that at the time of the accident oil was at 70ish per barrel. Soon you will see the price of oil per barrel at 90ish. So do the math. BP will come out of this just fine. US GOV needs to lift the moratorium as soon as restrictions are imposed, just like Valdez. The sooner the better or it will have a great impact on job losses. Halliburton and Baker Hughes already said they will relocate Rig hands to other Countries that are active in Drilling. Not to be insensitive about the loss of lives and the impact it will have on our ecosystem, but TIME always works in mysterious ways. It will all come to an end, (the clean up) and we will all move on.

Arcticson said...

David - thanks for the info on similar oil disasters... here's another link
http://gcaptain.com/maritime/blog/historys-10-most-famous-oil-spills/

Also - the US Seems to forget that BT is a critical part of the US energy infrastructure.