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Friday, June 4, 2010

A Brief Musing On BP

I heard briefly from my uncle in Austin, an environmental engineer for nearly twenty years. He stated that he and his colleagues have extrapolated from the reports coming from BP that a great deal of information is not being shared. Most important of this information is that BP knows the scale of this disaster is far, far greater than the media is illustrating. It will not simply choke the Gulf ecosystem, nor be limited just to the Atlantic. The well is around three miles under the sea floor, and the flowing oil is eroding the walls of the well and its pace exiting into the sea is accelerating.

BP has given up plugging the leak, and it will be August at the earliest that relief wells are ready. That's two months of between 12,000 and 19,000 gallons per day, perhaps at a faster pace by August. With BP paying out to businesses affected by the spill, having already been billed once by the federal government for $69 million in cleanup costs and committing to covering the total cost of cleanup, which we now know will be an ocean-to-ocean-scale job, I think even a $36 stock price is asking just a bit too much.

Pile on a criminal investigation, public outrage, and some not-so-bright Republicans hoping to take advantage of an event that practically forces congress to introduce further regulations against drilling in the Gulf, and BP seems, for all their profitability, boned.

Do you guys agree? Would other Gulf-operating organizations be affected long term or will the moratorium be lifted quickly enough that these other companies could take advantage of BP's now tarnished image?

1 comment:

  1. I will admit that even the $36 level doesn't look as good as it did when the stock was around $45. The chart has that certain "death spiral" look to it, which is hard the fathom, but it was hard to fathom for AIG too.

    The problem is that if indeed this is not fixed until August, as your information and some media reports suggest, the liability is nearly incalculable. BP has $90 billion in shareholder's equity. That could be at risk. If they get hit with huge lawsuits and their drilling rights are taken away (a very real possibility from what we have heard so far), then there is serious trouble.

    I guess you are right, this is one to stay away from.

    On a knee-jerk basis I would have said that the other companies with Gulf operations look more attractive as they will pick up what BP can't take advantage of, but I'm not so sure anymore. Public support for drilling is rapidly diminishing and this will be a political football. Indeed, all of those plays look questionable now.