As if it wasn’t bad enough that BP is probably going to suspend its dividend if it can’t plug the leak, there will be all kinds of charges and damages awarded to BP, but possibly also to Halliburton or TransOcean once this disaster comes full sweep.
Those who follow me on Twitter know that I’m not one to apologize for the economy at the sake of the environment (the earth is clearly more important), but we humans live in the capitalist framework that requires we invest what extra money we can gather in hopes of a better future. So in a way, the stock market is part of our larger human ecology, too.
And investors in BP (NYSE: BP) are probably going to continue to take a beating as this debacle carries on. Just compare it for a moment with Exxon Valdez, that nasty 1989 tanker accident near Alaska which released 250,000 barrels of oil into the ocean after the tanker hit a rock range.
Over 20 years later, scientists are still finding persisting effects of the Exxon Valdez spill. At the time, Exxon had to take out a credit line with JP Morgan just to cover itself in case of punitive damages, etc. It was charged $287 million in actual damages and then another $5 billion in punitive damages. It didn’t have enough cash on its balance sheets to pay for it all. So you know what? In an especially ironic piece of note for today’s post-Lehman age, it was the Exxon Valdez crash that became the impetus for the invention of credit-default swaps. Yep.
Potential Effects of BP Oil Spill on UK and World Economy
Will BP Need a Bailout?
.
Can BP afford all of this? Does it have enough cash savings set aside in the case of unmanageable damages yet to come? We hope so, because who would bail BP out? The broke UK government?
Funny how this all comes together – here we are waiting for a double-dip, and we get the usual May correction; but it’s not over yet, because Europe can fall further and BP might need to borrow money if the spill can’t be contained. Credit-default swaps were one of the key factors in triggering the initial Lehman-collapse – could they rise their heads again in regard to BP’s disaster?
Who will pay for the oil spill and clean up? Workers to stop the spill, the equipment needed, the lost oil (BP is trying to save as much of it as they can, spending money on refining it and separating it from the sand when the workers rake it up), the burnt oil, the money to drill a new well, the lost rig, and all the other ongoing environmental clean up costs in the short term and medium-ongoing term.
Some think BP Will Have to Cut Its Dividend
Could the Oil Spill Bankrupt BP?
.
It seems a stretch to think BP could fall into bankruptcy as a result of the Gulf spill, but let’s think three steps ahead. Imagine that they can’t plug the leak and it goes on for another three months until the end of August (and then what if the relief well doesn’t work?). That’s three months worth of costs in staff salaries and equipment and whatever other damages BP will have to pay in the meantime.
BP has plenty of other worldwide operations, but take a look at the oil price. It hasn’t improved at all upon moving into the so-called “driving season.” In fact, it has sunk ever since the Euro started falling against the USD. So BP certainly isn’t going to be making any extra profits from the rest of its businesses. If the oil price sinks back to $50, there could be serious trouble (it’s often quoted as a break-even mark).
All in all this is good for nothing – the environment, the US economy, the UK economy (two of the most troubled economies, right now, too) or anyone.
Everyone has to hope the leak stops soon or we’ll all be dipping our stocks in oil.
If you found this article useful, please retweet it on Twitter or stumble it on StumbleUpon. I’d also love it if you subscribe to my RSS feed for free tips and posts like this one delivered right to your reader or by email (posts are not for duplication).
Related Posts - As BP Share Prices Sink, Are Your Investments Safe? Or Will BP Cut Its Dividend?
- Reasons You Should Get Started Investing While Still A Graduate Student
- Outlook for Canadian Stocks in 2010
- Jim Cramer's Top Ten Stock Picks for Diversification
- Large-Cap Canadian Energy and Materials Stocks
Related Articles From Other Websites
{ 4 comments… read them below or add one }
If they’re unable to cap the leak for another three months that would be a major league complication. The next three months includes hurricane season! No telling what affect that will have on both the spill and on the efforts to stop it.
Personally, I doubt it will be that bad. All efforts will be marshalled into correcting this, otherwise the consequences could be beyond imagination. One of which might be a temporary ban on offshore drilling, and that could affect oil prices for years.
It’s really hard to say. At this point, honestly, I feel much more pessimistic about it following the topkill failure. Whatever happens, little good is coming to BP’s share prices. It’s hard to see any upside for them until the leak is fully stopped.
Good article on the BP Oil Spill. This really hit home for me. I don’t believe it could bankrupt BP though, even if the cost of oil dramatically dropped.
BP stock has recovered about 50% or so from the April-May declines, but it’s still not back to where it was pre-spill. But it also doesn’t seem to be in severe financial danger, at least based on the information we currently have.