BP - off the hook ? ...and a BUY ?

JamesU

amcluesent wrote: »

A nuclear bomb on the seabed should send down pressure waves which will collapse the bore holes at depth and seal the leak.

Anyway, the doomsters always go OTT. I remember after Saddam torched the Kuwait well-heads we were told they'd burn for years and birds would fall stone-dead out the trees in the Brazilian rain-forest. It was all sorted in a couple of weeks.

Ironic that the gesture politics and grandstanding of the politicians is now driving down the whole of the US stock market. Must have been interesting back in the 18th century when the nation's railways etc. were actually being built and politicians didn't instinctively say no to everything in case a pressure group was upset.

Fair comment. Normally fitch downgrade of Spain would be enough.

JamesU

97trophy

Oil could hit Florida Panhandle by Wednesday

PENSACOLA BEACH, Fla. — A Florida beach might get hit with oil from the Deepwater Horizon accident for the first time Wednesday as sheen likely caused by the accident was reported less than 10 miles off Pensacola Beach.

http://www.palmbeachpost.com/news/state/oil-could-hit-florida-panhandle-by-wednesday-720986.html

sabretoothtigger

http://www.zerohedge.com/article/cs-sees-total-bp-oil-spill-cost-37-billion-eat-3-years-free-cash-flow-will-require-10-rise-g


BP lost 34% of its value but usa is only 25% of the companys business.
Another way to track sentiment on this disaster is OIH which contains all the usa oil drillers

tradetime

sabretoothtigger wrote: »

http://www.zerohedge.com/article/cs-sees-total-bp-oil-spill-cost-37-billion-eat-3-years-free-cash-flow-will-require-10-rise-g


BP lost 34% of its value but usa is only 25% of the companys business.
Another way to track sentiment on this disaster is OIH which contains all the usa oil drillers

Interesting STT, according to Bloomberg though 40% of BP's reserves are in North America, their line of thought was that if BP were prevented from operating in North America as a result of this it could result in a firesale of assets.

sabretoothtigger

BP ended relatively positive but I think it was right at the top of its range.
I think it'll fall back some and that will be the measure of things in the absence of any major news which may not occur till the weekend I think

simulatorman wrote: »

Squeeze some more:

Fourstar wrote: »

Gush baby gush!


From all the oil pouring out round their sled mounted cable saw I guess it must be making progress.

Fourstar wrote: »

Think 60-70% chance of working was mentioned. Working means collecting oil, BP says up to 90% (of oil will hopefully be collected) which must be regarded as a very best estimate.

They started cutting at 2am this morning according to one of the night owls still up. Looks like they are less than half way through as of 4:30pm.

(cut can be seen right of the pipe where oil is spewing out)

JamesU

Blade stuck and to be replaced though..........

http://edition.cnn.com/2010/US/06/02/gulf.oil.spill/index.html?hpt=T2


JamesU

Jake'sGran

I sometimes buy shares and......you guessed it, the last one I bought was BP. No amount of research would have told me about a well exploding. :eek:

worldtraveller

The whole nation is watching the unfolding disaster in the Gulf in disbelief.

It's hardly a surprise that BP stock plunged again Tuesday. But panicking never helped anybody, investors included. With so much of the coverage now gripped by hysteria, it's time to look at some cold facts.

Here are the numbers that investors need to know.

First, what cost is Wall Street putting on the disaster?

Despite the total focus on BP, four other companies were closely involved in the Deepwater Horizon well: Anadarko Petroleum, its minority partner, Transocean, which operated the rig, Halliburton, which was responsible for cementing the well, and Cameron International, whose blowout preventer failed. Shares of all five companies have slumped since the April 20 explosion. In total about $111 billion has been wiped off the value of their equity–most of that from BP. But some of these losses are simply due to the stock market downturn: Over the same period the S&P Global Energy Sector has fallen 15%. If we assume the "Deepwater Five" would have seen their shares fall by a similar amount anyway, the extra decline–presumably due to the disaster–totals about $66 billion.

Second: Is that a reasonable estimate of the likely cost? Is it too little? Too much?

Before this, the worst oil disaster in history was the Exxon Valdez spill of 1989. As noted here previously, Exxon ended up paying about $7 billion in today's money as a result. Will this disaster end up costing nine times as much as Valdez, in inflation-adjusted terms?

One major difference is the impact on local economies. The fisheries of the Louisiana and Mississippi coasts have been devastated. So too, for some time, has some of the local tourist business. But how big are they?

According to the Commerce Department, "forestry, fishing and related activities" for the entire state of Louisiana accounted for about $613 million in economic output in 2007, the last year for which numbers are available. For Mississippi it was $609 million, bringing the total to $1.2 billion. That includes forestry–much of it, presumably, inland. But let's assume it's all completely wiped out for now. Cost: $1.2 billion a year.

Arts, entertainment and recreation for the two states was worth another $3.7 billion, most of it in Louisiana. The impact of the Deepwater oil slick is harder to measure here. Presumably it will not stop the New Orleans Saints from playing, nor will it shut cinemas across the two states. If the Gulf spill halves all arts, entertainment and recreation activity in both states–an incredible assumption, but let's be ultra-conservative–that will cost about $1.9 billion a year.

Then there's the cost to the rest of the tourist business. According to the Commerce Department, the total sales of all the restaurants and hotels in both states, from a French Quarter eatery to a local diner in northern Mississippi, came to about $9.1 billion in 2007. Let's assume they won't all be closed down. Let's further assume that some of the hotels and restaurants on the Gulf are doing a brisk business right now from all the people down there to cover, monitor or work on the spill. (It would be interesting to know how much the media folk are spending in the local bars, restaurants and hotels on their expense accounts–and how that compares with the usual take around this time of year.) But once again let's assume the entire restaurant and hotel business across both states loses half its business from this. That's another $4.5 billion a year.

Total cost from all three: $7.6 billion a year.

If we further assume the other costs–including fines, cleanup and so on–come to, say, double those related to Exxon Valdez, that would be another $14 billion.

There are further unknowns, of course. The damage may spread to other states as well. But based on these numbers, it's a challenge to put a $66 billion total cost on the spill. Not impossible, but a challenge.

And if this disaster leads to much tighter restrictions on deep-water oil drilling, that will prove a mixed curse for the industry, including BP. After all, presumably that would restrict supply. All things being equal, that should lead to higher oil prices.

In the panic today, BP's bonds have also crashed. Credit markets started pricing in some risk that BP could default, and the interest rate on the bonds rocketed to 1.8 percentage points above "risk-free" government paper. Once again, it's a challenge to see this through cold math. BP came into this crisis with a solid, well-managed balance sheet. While it carries debt, like any major company, it was minor. As of the end of March it had $86 billion in current liabilities and long-term debt, compared to $70 billion in current assets such as cash and inventories. Operating income was $22 billion last year. Interest expense was about $700 million. BP's dividends alone come to about $10.6 billion a year. (The company, incidentally, could do itself a huge public relations favor by suspending all dividends until further notice).

As an investor, what are your choices?

BP stock, which was $60 before the explosion about six weeks ago, is down to $38 now. These are lows last seen during the depths of the 2002-3 and 2008-9 financial crises. The dividend yield is nearly 8%.

No one knows when or how this disaster is going to end. As noted some weeks ago, anyone buying BP stock in this environment is taking a gamble: The stock looks cheap, but the risks are unknown and ultimately not measurable. And even if your gamble is proven right in the end, you will need nerves of absolute steel to hang on for the ride.

I'd rather bet on the options. At least your losses are capped. Options give you the right to buy the shares at a fixed price, but no obligation. So if the shares recover you can make a profit but if they continue to slump you only lose the small stake you paid for the options. For example $40 call options good until January 2012 are now just $6.75 per share. Those give you the right to buy the shares for $40 at any point over the next 19 months. The $45 options, giving you even more leverage are $5.45. (Options sell in round lots of 100).

Caveat emptor, as always.

Corrections & Amplifications
Forty-dollar call options on BP shares for January 2012 are now $6.75 a share. The $45 options are $5.45. An earlier version of this column incorrectly gave the June 2010 prices for those options, which are $1.50 and $.32, respectively.

Wall Street Journal

lvader

BP shares currently up 3% in US trading.

tradetime

lvader wrote: »

BP shares currently up 3% in US trading.

Small in comparison to it's partners in crime, Haliburton +11%, Cameron +7%, Anadarko +5% Particularly when framed against the loss in market cap so far.