"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.
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.