BP (ADR)

[Hoodlum]

The Government panel of scientists have increased their estimate to the worse case scenario.

 

http://news.yahoo.com/s/ap/20100615/ap_on_bi_ge/us_gulf_oil_spill_flow

 

"A government panel of scientists said that the ruptured well is leaking between 1.47 million and 2.52 million gallons of oil daily. The figures move the government's worst-case estimates more in line with what an independent team had previously thought was the maximum size of the spill.

 

As of Tuesday, the maximum amount of oil that has gushed out of the well since the April 20 explosion is 116 million gallons, according to the estimates by scientists advising the federal government.

 

BP PLC now has a containment system in place in the Gulf of Mexico that has been capturing nearly 648,000 gallons of oil daily. That system was forced to shut down as a precaution Tuesday morning because of a fire on a ship connected to it. BP said the collection system was not damaged and about five hours after the fire, the containment operations resumed."

 

[nomore]

Irony was that the firm Matt Simmons founded, Simmons & Co, had an OUTPERFOM rating on BP with a target price of $52.00.

 

Matt Simons on the other hand, was quoted " In response to calls for a $20 billion escrow to be set aside by BP, Simmons concludes the company’s as good as insolvent.

 

“They have $5 billion in cash, a $5 billion line of credit, and a $10B emergency line of credit,” says Simmons, “and they boast about how their operating cash flow is $17 billion per quarter. But that’s all consumed in capital expenditures. This outlay [the $20 billion] is going to consumer everything they have.”

 

Simmons has a 4,000-share short sale on BP that he picked up when the stock hit $37. That’s in addition to a prior 4,000-share short sale he made at $48 a couple weeks prior. “It’s going to zero,” he says of BP stock."

 

http://whereiszemoola.blogspot.com/2010/06/will-bp-go-bust-or-will-bp-recover-back.html

 

 

[alertmeipp]

>>Matt Simons on the other hand, was quoted " In response to calls for a $20 billion escrow to be set aside by BP, Simmons concludes the company’s as good as insolvent.

 

>>“They have $5 billion in cash, a $5 billion line of credit, and a $10B emergency line of credit,” says Simmons, “and they boast about how their operating cash flow is $17 billion per quarter. But that’s all consumed in capital expenditures. This outlay [the $20 billion] is going to consumer everything they have.”

 

 

that's non-sense. BP will pop to 50 if 20 billions is all they needed.

[Myth465]

Sine want BP to put an initial downpayment of $20 billion in escrow today. I dont think anything thinks thats all they would need, but many want it up front today with more cash calls further down the road.

[alertmeipp]

i understand that.. but to say to pay 20b will make BP insolvent is non-sense.

[SharperDingaan]

 

Some interesting things that weren't in Obama's speech.

- At 60K bbl/day this is dumping an Exxon Valdez (250K bbl total) into the Gulf every 4 days; BP's roughly 40% recovery rate just means that it now takes 7 days versus 4. It's show, not substance.

- $20B is only the first installment. The administration will decide who gets paid, how much, the timing of payments, etc; & they mean to use it as a stimulus package. Its implied that the 2nd, & future installments, will be funded through the seizure of US assets.

- The administration expects hurricanes to bring up the sub-surface slick & materially add to the cost of insureds damage claims. The cash up front is in part to ensure that we don't get systemic illiquidity (paid claims waiting years for re-imbursement from BP) triggering widespread insurance failures.

- The administration is effectively taking over the recovery. If a relief well isn't possible untill late August, the well will gush another 11 Valdez at the current rate. There is no certainty that the relief well will work, & there is evidence that engineers have run out of better ideas. You have to think that the nuke option is rising on the list, & that no president is going to want to have to authorize a US supplied nuke being deliberately set off on US soil. Game changer.

 

Its hard to see how BP can possibly survive this. All they can really do is ring fence their assets against sovereign seizure as best they can, & run to the UK government for a 'too big to fail' bailout.

 

SD           

[Myth465]

I dont know how anyone can invest in RIG or BP after watching this 60 minutes piece.

 

http://www.youtube.com/watch?v=cLJHTTOSkpg

 

I would hate to be that company man. He may very well be the most hated man in the US when the investigation is over. I think 40,000 wells have been drilled successfully. The company with the worst record in the industry blows that, and its not even a US company. Why when the dust is cleared would they be given another chance with more leases?

 

Unless the deal is extremely lucrative why would other governments deal with said company. It seems like they will always have a competitive disadvantage.

[ERICOPOLY]

Interesting comments from Ken Peak, CEO of Contango Oil (he is one of my favorite CEO):

 

“There are two areas that give me great concern. The first is the concept of unlimited environmental liability for a spill, or a limit so high that a debt-free company with an approximate $1.0 billion market cap like Contango is in essence, asked to “bet the Company” every time we drill a well.

 

 

Translation:  It's only fair that somebody else pays the costs if I make a mistake.  Just let me keep all the profits!

 

I'm liking what Obama said tonight -- it's time we accept the external costs of our fossil fuel society and get serious about finding new energy sources.

[Uccmal]

Interesting comments from Ken Peak, CEO of Contango Oil (he is one of my favorite CEO):

 

“There are two areas that give me great concern. The first is the concept of unlimited environmental liability for a spill, or a limit so high that a debt-free company with an approximate $1.0 billion market cap like Contango is in essence, asked to “bet the Company” every time we drill a well.

 

 

Translation:  It's only fair that somebody else pays the costs if I make a mistake.  Just let me keep all the profits!

 

I'm liking what Obama said tonight -- it's time we accept the external costs of our fossil fuel society and get serious about finding new energy sources.

 

Ericopoly, I thought a lot about the above comment and the clarity you bring to it is remarkable.  Of course you are correct!  That is the reason insurance exists.  If something is uninsurable then that should tell us something. 

 

If a privately held Nuke in the US melts down the company will be wiped out.  Washington Power Supply took a major hit when 3 mile Island had its event.  Why should it be any different for an oil well? 

[Packer16]

I agree about alternative energy research.  However, I hope this will not turn into subsidizing uneconomic sources like wind and solar are today as this will only add to our debt problems like it has done in Spain.  As I think about his statement about China being the potential leader in alternative technology, I really question the premise.  They may come up with a better widget but how unique is the technology that others may not be able to easily modify and make it their own.  Given the nature of the market, I think this is a more likely outcome than royalties going to China for some unique technology.  I think China will peter out like Japan in consumer electronics - catching up quickly and possibly having a market but not a profitable one.

 

Packer

[Sea Island]

Anybody still believe in peak oil? We have no idea of the vastness of the resources of our earth.

[Cardboard]

I don't mind Obama trying to push the clean source energy idea. What I have a real problem with is that he never personally picked up the phone and called Tony Hayward.

 

Many of you work or have worked for various companies. What happened when an "issue" surfaced at work? And I am talking an issue not a catastrophe.

 

In my case, I would have had my boss, my boss' boss and sometimes another one continually asking me question about progress and would have been told to ensure that I would keep them updated. It is not "help" that I really needed or wanted, but it sure made me keep my eye on the ball.

 

Obama is the President of the United States. He is the boss. Now, he may not have seen the need to call BP in the early days and have someone delegated to take care of this issue, but once it became clear it was a national issue he should have picked up the phone and called. He could have yelled at Hayward, I don't care, but at least get off the ivory tower and get personally involved.

 

This is not about buddying with the oil companies and I really don't think that the public would have seen it as such either. It is more about showing BP who is in charge, keep applying pressure and offering any help that may be required to speed things up.

 

Cardboard

[tiddman]

“They have $5 billion in cash, a $5 billion line of credit, and a $10B emergency line of credit,” says Simmons, “and they boast about how their operating cash flow is $17 billion per quarter. But that’s all consumed in capital expenditures. This outlay [the $20 billion] is going to consumer everything they have.”

 

BP pays a dividend of around $10.5 billion per year... so not all of that operating cash is consumed.  Simmons throws around a lot of numbers but they often don't add up.

[tiddman]

Translation:  It's only fair that somebody else pays the costs if I make a mistake.  Just let me keep all the profits!

 

Yes the moral hazard here is similar to what happened to the bailed out financial companies -- capitalism on the way up and socialism on the way down!  The execs feel free to take risks and profit from them when things go well, but offload the costs to someone else when they don't.

[tiddman]

Anybody still believe in peak oil?

 

I think this spill is evidence that peak oil has passed.  The easy oil drilling has been done.  What's left is expensive, high-risk projects like deepwater drilling and extracting oil from Canada's oil sands.  I can only imagine the cost to find oil increasing over the next 10-20 years.

[Uccmal]

Anybody still believe in peak oil?

 

I think this spill is evidence that peak oil has passed.  The easy oil drilling has been done.  What's left is expensive, high-risk projects like deepwater drilling and extracting oil from Canada's oil sands.  I can only imagine the cost to find oil increasing over the next 10-20 years.

 

If you define it as an easy and cheap source of oil then absolutely.  At what point do we cross over to where cleaner/safer energy sources are also cheaper? 

 

I would suggest probably today, when the cost of externalities + E&D becomes greater than the cost of an alternative energy source. 

[Myth465]

Anybody still believe in peak oil? We have no idea of the vastness of the resources of our earth.

 

Yes Peak cheap oil. The easy stick a stick in the ground 1950s oil gusher stuff is long gone. Now we deal with Deep Water, Tar Sands, Shale, and other complex ways of getting it.

 

I agree about alternative energy research.  However, I hope this will not turn into subsidizing uneconomic sources like wind and solar are today as this will only add to our debt problems like it has done in Spain.  As I think about his statement about China being the potential leader in alternative technology, I really question the premise.  They may come up with a better widget but how unique is the technology that others may not be able to easily modify and make it their own.  Given the nature of the market, I think this is a more likely outcome than royalties going to China for some unique technology.  I think China will peter out like Japan in consumer electronics - catching up quickly and possibly having a market but not a profitable one.

 

Packer 

 

I think this is a bit short sighted. The inventor of a technology generally wins the game for a while. Once you invent or master something you inherent the expertise and basically own the industry. Then you get the Corporate offices and all the Corporate jobs / departments (CEO, CIO, CFO, Accounting, Ect). Its why the Oil capital of the world is in Houston (mastery / major source for a while), Finance in NY (mastery), and Tech is in Cali. If China gets the early patents then the major alt energy companies will be headquartered there, and the US will be the China of Alt Energy. Reverse engineering and taking the scraps.

 

This is fairly simply, don't copy Spain but use the free market to come up with something. Fund research via Universities and Venture Cap similar to what was done with the Internet, and put a price / floor on fossil fuels which captures the externalities. If oil was guaranteed to never dip below $100 a barrel. Then people would have a target to beat. Right now OPEC can flood the market when the chatter gets to be to much and drop the price to $40 where no alternatives are profitable. Making anyone serious about making money unlikely to do much in this space.

 

Tax it, dividend out some of that tax for consumers, and use some of it to fund alternative research / Capex upgrades. Also switch cars to nat gas, and give rebates for converting old cars. We are swimming in that stuff.

 

The free market alone has rarely solved the nations problems or invented something trans-formative. The US Government (funding and taxing), US Universities (brain child), and US Army (main driver) working together has invented most of the high tech over the last 50 years. The free market makes things marketable, consumable, and viable once they have been invented and is great at improving things.

[ERICOPOLY]

It will be interesting to see if Bill Gates is close to the center of the next major revolution -- the energy revolution.  What an incredible life that man has led.

 

A generator that utilizes our existing stores of nuclear waste as fuel. 

 

http://earth2tech.com/2010/02/15/terrapower-how-the-travelling-wave-nuclear-reactor-works/

 

TerraPower uses a small amount of enriched uranium at the beginning of the process (see slides at the bottom of the post), but then the nuclear reactor runs on the waste product and can make and consume its own fuel. The benefits are that the reactor doesn’t have to be refueled or have its waste removed until the end of life of the reactor (theoretically a couple hundred years). Using waste uranium reduces the amount of waste in the overall nuclear life cycle, and extends the available supply of the world’s uranium for nuclear by many times.

[bargainman]

Anybody still believe in peak oil? We have no idea of the vastness of the resources of our earth.

 

Well actually supposedly we do.  We've been looking for oil for a long long time. 

 

http://en.wikipedia.org/wiki/Peak_oil

http://en.wikipedia.org/wiki/File:PU200611_Fig1.png

 

"This concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted"

..

"M. King Hubbert created and first used the models behind peak oil in 1956 to accurately predict that United States oil production would peak between 1965 and 1970.[1] His logistic model, now called Hubbert peak theory, and its variants have described with reasonable accuracy the peak and decline of production from oil wells, fields, regions, and countries,[2] and has also proved useful in other limited-resource production-domains. According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical logistic distribution curve (sometimes incorrectly compared to a bell-shaped curve) based on the limits of exploitability and market pressures. "

 

[Sea Island]

"'THE END OF THE OIL AGE is in sight,' says U.S. petroleum geologist M. King Hubbert.... If present trends continue, Dr. Hubbert estimates, production will peak in 1995 -- the deadline for alternative forms of energy that must replace petroleum in the sharp drop-off that follows." from "Oil, the Dwindling Treasure," National Geographic [June, 1974]

 

Say what?

[beerbaron]

Oil is like any other limited ressources. The cost of extraction will rise, prices will continue to raise up until a pivot point where new technologies become economically viable.

 

For those annoncing the end of oil I would say that we have no substitute for it for agriculture, no infrastructure to power vehicles with something else and power plants that rely on them. The switch from petroleum to something else is going to be long, maybe 50 years... Did it ever occured to economists that there might not be a solution for our energy needs to petroleum for a lot of applications? Under normal economic theories there is an new supply of other materials once a ressource is depleted, that is non-sense, how can the sum of many limited supplys of ressource give an infinite number?

 

This is not the end of petroleum, it might trigger the US government to finally focus on developping other alternatives, which is great because there will be a huge need of energy in the future and that I don't see any real economic progress without cheap available energy supplys.

 

The US government if really dedicated can find solutions to a problem (if there is one solution) quite fast. In 1939, scientists were discussing if nuclear fission was even theorically possible. They had no previous experience and equipments, the US signed a blank check, putted the greatest minds together and 4 years later they had a nuclear bomb. Quite impressive! I don't believe the US commitment to energy solutions can be compared to WW2.

 

Oil is here to stay for a long time... and I believe that 150$ barrel was a better incentive for new technologies then any government interventions. That's the beauty of free markets.

 

BeerBaron

[tiddman]

For those annoncing the end of oil I would say that we have no substitute for it for agriculture, no infrastructure to power vehicles with something else and power plants that rely on them

 

Biodiesel and natural gas?

[Sea Island]

Amen Beer Barron. Lets hope free markets have some life ahead of them. Comsumption leads to effeciency. We continue to get better at finding fossil fuels as demand increases. The best thing governemnt could do to get to alternative forms of energy would be get out of the way, reduce regulation, reduce taxes, reduce subsidies and let the best source win. By the way ethanol, biodiesel etc. consume far more energy in their refining process than they save.

[nodnub]

Amen Beer Barron. Lets hope free markets have some life ahead of them. Comsumption leads to effeciency. We continue to get better at finding fossil fuels as demand increases. The best thing governemnt could do to get to alternative forms of energy would be get out of the way, reduce regulation, reduce taxes, reduce subsidies and let the best source win. By the way ethanol, biodiesel etc. consume far more energy in their refining process than they save.

My understanding is that holds true for corn-based ethanol... but ethanol from sugar cane is supposed to be much more practical/economical in comparison to corn.

[Sea Island]

Correct, but what did the US govt. do? Hiked tariffs on sugar imports and increased subsidies for ethanol.