Will BP go bankrupt?

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"Will BP go bankrupt?"

Matt Simmons told Fortune this week BP has “about a month before they declare Chapter 11.”  He is a smart guy –  a peakist who has run a successful boutique energy investment bank for three decades.

On the other hand, the oil giant has very, very, very deep pockets.  The PBS Newshour had a good show on this yesterday:



JUDY WOODRUFF: Byron King, back to BP itself. What is its ability to handle claims? How far can it go? How deep are its pockets?

BYRON KING: Well, just getting to the dividend issue, BP, on an annual basis, pays out over $10 billion of dividend money every year.

Now, as — as we have discussed earlier, a lot of that money is going to British pensioners and to U.S. pension funds as well. If — if they simply eliminated the dividend, they would have a $10 billion-a-year war chest to clean things up. And then, also, BP has another $25 billion or so per year that it’s doing in capital investment around the world in other oil provinces and other energy developments.

So, BP has a lot of cash flow with which to pay things. And, also, you need to realize that we’re not asking BP and BP isn’t going to pay all of its damages tomorrow. BP is going to clean things up over many, many years. This is going to play out over five years, eight years, 10 years.

And the long-term environmental effects, we don’t know. They are probably going to be monitoring the Gulf of Mexico and the Atlantic Ocean forever, for the rest of your and my life. That’s for sure.

JUDY WOODRUFF: And you’re — just quickly, you are saying you believe it has the wherewithal to do that?

BYRON KING: I think that, based on the raw numbers, what it owns, what it does, how much cash flow it has, BP can afford financially to survive this disaster.

If the politics become very, very ugly — and we have heard sounds of, oh, we should seize their assets, we should break them up, we should put them in receivership, you know, then — then — then things are off. You know, and who knows what would happen to those assets?

I mean, the Alaska pipeline that BP owns half of could wind up being the China pipeline. Or the — you know, Prudhoe Bay could get sold to the Russians. I mean, there’s all sorts of things that we can do that would disrupt the — you know, disrupt the energy economy of the United States.

It seems, “based on the raw numbers,” BP easily has the wherewithal, so I am skeptical of bankruptcy, too.  Frankly, it isn’t in America’s interest to force it to happen — we need access to the revenue stream and we want the money sooner rather than later.

Here is Simmons on “What are the lessons learned from this environmental disaster?”

That oil peaked. The easy stuff is over. We have to continue drilling in shallow water, but we probably need to take a deep breath and step back. Until we develop a new generation of equipment that can respond to these accidents, just don’t go into the ultra-deep water and deep formations because it’s just too risky.

Duh?

UPDATE:  If Matt Simmons is right about peak oil, oil prices will double in the next few years (if not triple) — I heard him speak last summer — and BP’s profits will go through the roof.

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19 Responses to Will BP go bankrupt?

  1. prokaryote says:

    This is indeed a tuff question. Looking at the recent trend it is possible. But what would possible happen? BP would be bought by some other usual suspect.

    Whose spill is it anyway?
    Media attention surrounding the Gulf oil spill has focused almost exclusively on oil giant BP. The markets, however, have taken a much broader approach when placing blame.

    The graph shown here charts the declining market value of five companies tied to the catastrophe–BP, Transocean [RIG], Haliburton [HAL], Schlumberger [SLB], and Cameron [CAM]–against the Dow Jones Industrial Average, a bellwether of the global economy.

    Much has been made in recent days of BP’s stock loosing more than half its value, however, Transocean’s stock has fallen further than BP’s for much of the past month and a half.
    http://www.newscientist.com/blogs/shortsharpscience/2010/06/whose-spill-is-it-anyway.html

  2. prokaryote says:

    Considering BP’s safety violation records and how they handle this disaster i think the world would be better of, without BP and the other companies connected.

    On the bottom line this could be the start of the end of oil giants. Once investors shift investments into clean energy solutions.

  3. prokaryote says:

    Moody’s Lowers Transocean’s Ratings Outlook To Negative
    http://online.wsj.com/article/BT-CO-20100610-710001.html?mod=WSJ_latestheadlines

    BP Among Companies Removed from Global Sustainability Index
    http://www.socialfunds.com/news/article.cgi?sfArticleId=2964

    Funny that BP made it into a sustainability index anyway ;)

  4. mike roddy says:

    I don’t think BP is much worse than the other oil companies, such as Chevron (Nigeria). The positive outcome of a bankruptcy would be redirection of capital to cleaner technologies, and possibly prohibitive cost for tar sands and deep offshore wells.

    The media is trying to spin it as what about all the pensioners in England and the US etc. Pension funds are invariably quite diversified, and effects will be minor.

    The rich and the big banks love oil companies, because they have been historically low risk. The smart rich already sold BP, but the dumb and stubborn rich are the ones fighting for share value. Let’s let them go down. Who cares?

  5. catman306 says:

    Robert Reich thinks it may be time to put BP into recievership

    “Wouldn’t it be far simpler for the White House (stating that the Pollution Control Act of 1990 gives it authority) to put BP’s American operations into temporary receivership? That way, Obama can take over BP’s assets here and use its expertise to stop the leak and clean up the mess as soon as possible — and leave the subsequent years of bickering to the courts.”

    http://robertreich.org/post/691559649/why-the-united-states-still-cant-get-bp-to-do-whats

  6. Jeff Green says:

    I have this trust issue with management handling our most dangerous resources. Safety procedures shouldn’t be sacrificed when the consequences can be so drastic. Somehow our mangers need to get it with their actions. Taking risks with lives and severe environmental consequences has to be put before profits. Its an old story that never quits.

  7. Raul says:

    Could be beyond polution wants to admit that it
    hurts so much they would like a different name.
    Maybe poluted more than just the gulf would be
    a fitting name.

  8. Rabid Doomsayer says:

    Matthew Simmons does know his stuff, but I think BP will still be in “deny reality” mode. This is going to go on and on and on.

  9. Turboblocke says:

    Of course, another explanation of this talk of sanctions against BP could be to force its share price down to make it an easy acquisition target.

  10. JKSmith says:

    Here’s the ownership breakdown of the Trans Alaskan Pipeline System (TAPS):

    BP Pipelines (Alaska) Inc. 46.93%
    ConocoPhillips Transportation Alaska, Inc. 28.29%
    ExxonMobil Pipeline Company, 20.34%
    Unocal Pipeline Company, 1.36%
    Koch Alaska Pipeline Company, L.L.C., 3.08%

    A BP Bankruptcy would impact the development and funding of the Alaska Gas Pipeline. BP is the 50% partner of ConocoPhillips in Denali – one of the two schemes to build a large gas pipeline.

    The gas line is more at risk than the oil line – no bankruptcy procedure is going to stop the flow of the oil.

  11. prokaryote says:

    Companies like BP have more power than ever before – but there is a democratic deficit at the core of their governance

    The transatlantic diplomatic pugilism over BP is only part of a much bigger story. The crisis has laid bare how our dangerous dependency on oil has led companies into ever riskier forms of extraction; unless we wean ourselves off this addiction more disasters seem inevitable. Deepwater has also exposed another dangerous dependency in which we are all complicit: our blind reliance on Tony Hayward, Sir Fred Goodwin and other corporate titans to provide for our welfare in old age.

    The environment is fragile, and so are our pensions. BP accounts for £1 in every £7 of British pension funds’ dividend income, and 40% of its dividend payments go to US investors, including state pension funds for teachers and other public servants. Its innocent victims are not just fishermen in Louisiana, but grandmothers from Texas to Torbay. Big oil has supplanted big banking as the dominant element in pension portfolios. The flow of dividends from finance stalled in the credit crisis and if BP suspends its payment as expected the oil income will fall too.

    Managements could be better held to account if investors were to band together. There are already some early signs of this happening: before Deepwater, large and small shareholders in BP backed a resolution at its annual meeting asking it to provide more information about the risks of its controversial plans to extract oil from tar sands. Ordinary members should be given clearer information and more of a say in what their fund is doing with their savings. This has started to happen in the Netherlands, where the PNO Media pension fund is trying to create a new model of socially responsible investment with more transparency for members.

    Shareholder power is a sleeping giant. The Deepwater crisis might mark the moment it finally began to stir.
    http://www.guardian.co.uk/business/2010/jun/13/sir-fred-goodwin-tony-hayward

  12. prokaryote says:

    Belief Systems at a Turning Point

    It seems to me with the BP Horizon Blowout, we may be hitting a turning point in belief systems, in more than one way:

    • Can businesses really be expected to regulate themselves, with minimal oversight?
    • Can technology solve our all our problems?
    • If there are technological solutions, can they be expected immediately?
    • Can we really depend on the oil supply that everyone has told us is here?

    http://www.theoildrum.com/node/6591

  13. prokaryote says:

    President Obama to demand BP escrow account

    President Barack Obama plans to use a meeting with BP executives this week to demand that they create and fund an escrow account and accept an independent panel to handle damage claims by individuals and businesses hurt by the Gulf disaster, a White House official told POLITICO.

    Obama wants BP to set aside funds to pay damage claims, to be “paid out under fair, efficient, and transparent procedures administered by an independent third-party panel established just for this purpose,” the official said.

    The announcement is the latest effort by the White House to be sure BP, not taxpayers, wind up with the bulk of the bill from the nation’s worst environmental calamity.

    The White House has become exasperated with BP’s handling of claims, which the administration says has been slow and clumsy.

    Read more: http://www.politico.com/news/stories/0610/38461.html#ixzz0qjdkzvwN

  14. mike roddy says:

    More on BP shareholders: The claim is being made that poor old English pensioners derive 12 or 14% of their dividend income from BP, and will suffer great hardship if the divident isn’t paid.

    I guarantee this is a false claim, concocted by BP management, PR staff, and wealthy investors. First, many pension fund stocks don’t pay dividends, and the retirees count on long term appreciation. Second, you can define any stockholder over the age of 60 as a “pensioner”, including the very wealthy.

    This is a very cynical way to try to guilt trip those who don’t know any better into siding with an oil company that richly deserves bankruptcy.

  15. Edward says:

    Would bankruptcy be nothing more than a way to get out of paying for the damage BP has done? I doubt that BP would no longer exist or that its culture would change.

  16. mike roddy says:

    Edward:

    If BP BK’s, the US would be first in line to get its assets. Bankruptcy law is unlikely to protect them, since international common law and national interests are at stake.

  17. Foppe says:

    http://www.zerohedge.com/article/bp-schrodingers-cat-simmons-upgrades-firm-buy-seeing-it-both-bankrupt-and-52-stock-price-sam
    “Ever wonder who may have been buying up every share of BP stock earlier this week, especially when it plunged to 14 year lows on June 9 amid media frenzy based on a Fortune story in which Simmons & Co.’s CEO Matt Simmons was quoted as saying that BP “has about a month before they declare Chapter 11.” Why, Simmons & Co. itself, of course. In a note released to clients on Friday, Simmons & Co, upgraded BP from Neutral to Overweight, in which Mr. Simmons amusingly notes, “the kitchen sink of headlines have been thrown at BP shares over the past 2 weeks, thereby partially desensitizing the shares to the news.””

  18. prokaryote says:

    BP executives could face up to 15 years in jail for their role in the Deepwater Horizon oil disaster, legal experts say.
    http://www.news.com.au/business/breaking-news/bp-executives-could-face-15-years-jail/story-e6frfkur-1225879591963

  19. Chris Winter says:

    http://www.youtube.com/watch?v=0onXmlFgF8I
    Part 1 of 60 Minutes interview with Mike Williams, chief electronics tech aboard the Deepwater Horizon. Williams makes two critical points in this segment:

    1. Drilling too fast, the crew split the rock formation and wedged the drill bit in the bore. They had to cut the pipe and begin a new hole. They lost two weeks.

    2. About 4 weeks before the blowout, as the seal in the Blowout Preventer was being tested, a technician bumped a joystick. This caused 15 feet of pipe to be pulled through the seal, severely damaging it.

    See also: http://www.cbsnews.com/stories/2010/05/16/60minutes/main6490197.shtml?tag=contentMain;contentBody

    This morning, Thom Hartmann reported that another BP employee, requesting anonymity, confirms point 1. I haven’t been able to find any details about this online, but will keep looking.