Wednesday, July 28, 2010

BP (NYSE:BP) Falls on Continued Uncertainty and Fear

BP (NYSE:BP) share price fell Tuesday after the earnings of the company took a $17.15 billion hit, as the company took a pre-tax $32.2 billion dollars loss from costs related to the Macondo oil spill in the Gulf of Mexico.

Even the expected news Tony Hayward would step down on October 1 to make way for newly crowned CEO Robert Dudley wasn't enough to move the company into the positive, as it was already factored into the price.

What's more important for shareholders of BP and potential investors, is how they can somehow get their minds around the liabilities and lawsuits the company may have to pay out going forward, and what they will be after divesting up to $30 billion in assets to help pay for those expenses.

There are so many variables that it will be largely be a guess, and with leadership more palatable to most now being the face of the company, it does nothing to help with the uncertainties of the future of BP.

This had to happen, as the well, once plugged, and now a new CEO to step in soon, will reslt in all the focus, from an investors standpoint, being on the cost associated with the Gulf of Mexico oil spill.

Now that the smoke is clearing and people and institutions are getting a look, it's simply overwhelming as to where to even begin to figure out what this will cost BP over the years, and how to factor that into the share price of the oil giant.

How to discount an unknown is impossible, and this is far beyond the unknowns any company will have under normal circumstances, or even volatile ones.

The Gulf oil spill is unprecedented in history, and there are no guidelines to follow or stepping stones to walk on to show the way.

In the short term we could see shares in BP rise, as the permanent sealing of the well is announced, but again, where does one go from there?

There can be no doubt BP will be a speculative play for some time, and possibly once we see the percentage of individuals and businesses accepting the decisions of those presiding over the escrow fund we'll be able to at least get some clarity there.

Cleanup costs should eventually be clearer as well, once investigations into what it'll take to clean up the damage, and more importantly, what the actual damage is.

After that, most of the focus will fall on the lawsuits against the company and how they determine to deal with them.

Will they fight what appears to be frivolous and unwarranted lawsuits, or will they settle the vast majority of them to move things along fast so they can eventually start to restore confidence in the company once again?

The history of BP doesn't lend a lot of confidence either, as far as safety and accident issues go, so that will continue to be a factor in the back of the minds of anyone thinking about investing in the company.

Appearances things are settling down will probably give BP another shot in the arm as far as share prices rising, as they have throughout July, especially when the well is permanently sealed.

Then the job of factoring in all the variables begins, and I don't see how that could be done quickly in any way in order to discount potential and probable future liabilities.

More than likely we'll see a lot of movement with BP, and speculators could thrive in those circumstances based on every bit of news, which will gravitate toward claims and lawsuits as the narrative changes.

BP closed Tuesday at $38.00, down only $0.65, or 1.65 percent.

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