BP (ADR)

[Stove]

I visited the wrong part of Australia apparently.

[philassor]

Blood on the streets in the form of oil in the gulf of Mexico; seems like we are aproaching the point of maximum negative news regarding BP. Everybody is fearful; the situation appears to be just like a bubble in reverse; is it time to buy?

 

Tilson thinks so and he has been pretty good at using the greed when others are fearful.

 

I am starting to itch;

 

any takers here?  :-\

 

http://online.barrons.com/article/SB50001424052970203296004575308800681560686.html

[benhacker]

I started a small position at $30.  I am very uncomfortable with it in general (bad sign) because of the wide outcomes, but I will wait for the well to be plugged in August and see how I feel.

 

I think a permanent loss here is possible (remote though) so I am not making much of a position out of it.

 

Ben

[Packer16]

Why get involved with this mess when there are plenty of other opportunities without this uncontrollable risk.  I would be more inclined if the US gov't was acting more logical but with the know nothing crew blaming everyone else we have running things, I would stay miles away.  Did you know the commission looking into the spill has no petroleum or geologists on it but has a few radical environmentalists on its.  What kind of result do you think you are going to get out of these guys?  And the President believes the experts without questioning and using common sense he apparently does not have.  Also that the 6 month offshore ban was not the idea of a group of scientists but inserted after they signed off on other recommendations.  These guys will manipulate the data to there ends, make dumb conclusions and make BP pay for the result.  What do you think the $20 billion shake down fund was for - I would not be surprised of this money is used for other purposes such as TARP has been used.  Call me skeptical but this crew is a disaster waiting to happen.

 

Packer 

[Cardboard]

I fully agree Packer. It is hard to disconnect our minds from this story, but we have to remember that other more "quiet" investments are still competing for our capital.

 

So taking a step back, what is the potential upside under a good scenario? Goes back to $50 in 2 years? What is comparable?

 

Bill Ackman made a solid case for Kraft which has similar upside if you include the dividend. Bruce Berkowitz thinks that Citigroup has quite a bit of upside. These are two large caps where you can use LEAPS if you want or just like with BP.

 

I also think that Tilson made a strong case when you look at BP as a whole, its on-going profits generation and the fact that payments will be made over a period of years. Even the $20 billion trust fund is built over a period of years.

 

Two problems with the thesis are unremitted earnings and profits cyclicality. The cash at BP and its earnings are not all U.S. based. The majority is earned elsewhere and permanently reinvested locally to avoid taxes. If the cash pile and all earnings are now diverted to the U.S. to pay for the spill, you should expect a significant tax hit in the various countries where they are involved. I am not saying that it will make it impossible for them to pay, but it could create timing issues and will mean less cash available. If you get involved, it is something that you should carefully assess. Their profits also vary a lot. If we have a double-dip recession then what happens?

 

Cardboard

[Hawk4value]

The crew running the US gov't does not make decisions based on logic. They are ideologues who, as Rhom Emanuel has said in his book, will exploit every crisis to promote their social, cultural, political agenda. The rule of law is not important. In their world laws can be manipulated, obfuscated, and ignored. Think what they did to senior bond holders of GM and Chrysler debt. That was a wake up call. These are gangster tactics. 

[farnamstreet]

Tilson, explains in great detail (10 pages) why he's long BP

http://myinvestingnotebook.blogspot.com/2010/06/why-were-long-bp.html

[Packer16]

I guess if he considers the gov't milking BP dry or the liability growing to be larger than BPs ability to pay a black swan (it is not even mentioned as a consideration) he is correct.  Only when the well stops flowing can we assess this liability.  What happens if a hurricane blows the whole effort off the map?  I think this 0 scenario needs to be considered but he apparently does not consider it.  Too me it is too hard to assess.  It is like picking up nickles in front of a steam roller with faulty breaks.  You never know when it will stop.

 

Packer

[doc75]

The crew running the US gov't does not make decisions based on logic. They are ideologues who, as Rhom Emanuel has said in his book, will exploit every crisis to promote their social, cultural, political agenda. The rule of law is not important. In their world laws can be manipulated, obfuscated, and ignored. Think what they did to senior bond holders of GM and Chrysler debt. That was a wake up call. These are gangster tactics. 

 

I find this continued use of fear and crisis and name-calling by our leaders to be very disheartening.  I'm a fairly left-leaning fellow, but I am annoyed by this type of behaviour across the entire the political spectrum.  Politics is inherently divisive and always has been.  It just feels like today there is an over-eagerness to pit one group against another, with measured, well thought-out political discourse being almost entirely marginalized.  I can barely watch 5 mins of the mainstream news channels.

 

Is our current political situation a response to the apparently volatile state of world affairs?  Have things changed from even 15 years ago?  Or are politicians/media simply giving us a bigger serving of what the average Joe is demanding?

 

I assume that the use of fear/crisis for political gain has a well-established history.  Naomi Klein's book "The Shock Doctrine" may be a good read on this.  At least her work is well researched, even if you disagree with her conclusions.

[Myth465]

Coastal Energy is a much better buy than BP but is a small cap / junior so .......  , I prefer Thailand governmental risk to US Bloodlust  

 

REN, SD, XOM, and dozens of other names are probably also better.

 

There are so many oil and gas names from $200 million to $200 billion which are safe and cheap. People appear to be very contrarian and love to scan the headlines.

 

I am quite comfortable saying I dont know what the liability is for BP, I dont know what BP is worth, and I dont know if it will turn out to be a good investment. I do know that every bit of evidence that has surfaced has showed that BP showed wreck-less disregard and choose profits over safety. Every evidence also seems to show that the Management team is incompetent. Evidence also shows that the Government, and American public are pissed off, neither tend to be good business partners when they are upset.

 

I dont like dodging steam rollers, and will fish out my nickles in another pond. It however is fun as hell to watch.

 

--------------

 

To date just about every calculation regarding spill costs has been wrong.

 

http://www.marketwatch.com/story/bp-spill-costs-hit-2-billion-debt-offer-due-2010-06-21?reflink=MW_news_stmp

 

There is your strong balance sheet / cash flow.

 

NEW YORK (MarketWatch) -- BP said Monday its costs arising from the continuing oil spill in the Gulf of Mexico hit the $2 billion mark as the environmental disaster reached the grim 60-day mark and as the oil major reportedly set plans to float $10 billion in debt.

 

 

[tiddman]

I wonder if someone who has more background on the oil industry can answer a question for me.

 

It strikes me as a little odd that BP, a British company, has such a dominant presence in offshore drilling in the US.  This amounts to the US allowing billions of dollars of profits from its oil reserves to be shipped to the UK.  I am sure that the US gets revenues from leasing the oil fields, but it is also giving up a bunch of profits that could be earned by US companies.

 

Does anyone know the reasons why this is so?

[Myth465]

Free markets.

 

BP has a US Sub and Oil and Gas profits are generally reinvested, into more drilling here in the US. So the money from this well would have went into another well, somewhere in the gulf to reduce the tax bite. Some is sent home for dividends, but BP probably has a fairly large US share holder base. Cardboard is right people see a cash flow number but need to keep in mind that only 30% of BPs production is American based and the other cash flow is generated elsewhere. Not all of it can be pulled out and sent home to the parent or US sub due to tax and currency conversion issues. Each sub needs its own working capital and has its own budget and tax situation.

 

BP also still pays all of the state, federal, and local taxes associated with drilling and finding oil and gas, so its really no loss. The only difference is that some of the money is sent to UK shareholders.

 

Check out the presentations by Contango oil and gas to get a better feel for why people drill. Taxes are a huge reason why oil and gas companies tend to keep reinvesting their profits.

 

----

 

Also as you can see with Deep Water only the super majors can really do it. With rig day rates / costs hitting $1 million dollars a day its high risk, high reward. That leaves BP, XOM, Total, Shell, Conoco, and maybe 2 or 3 other companies.

 

Finally they dont have any where else to go. They have invested tons of money into Latin America and had a lot reserves nationalized. Drilling is restricted in Brazil, Venezuela, Mexico and large parts of the Middle East. Africa has nationalization risks as well. Mexico and the UK have peaked and are on the decline as well. Leaves the US, Canada, and a few other countries. Countries are cutting them out. You can start a national oil company, contract with Schlumberger / Haliburton for the expertise, and cut the majors out. Instead of getting 20% in taxes / leases you keep all of the upside. Then you can use all of the CF to finance your government (Venezuela / Middle East).  

 

Majors have either drilled offshore or bought minor junior producers to replenish reserves. Great for them, but bad for the world wide energy supplies. Deep water and unconventional reserves (Tight, Shale, Tar Sands) are where the big finds will be.

[tiddman]

Also as you can see with Deep Water only the super majors can really do it. With rig day rates / costs hitting $1 million dollars a day its high risk, high reward. That leaves BP, XOM, Total, Shell, Conoco, and maybe 2 or 3 other companies.

 

What about small companies like ATPG?

[Myth465]

They are basically betting the farm in my opinion.

 

They have the cash to drill the wells, but alot has to go right. Note if they had a spill they would be toast immediately. Also smaller companies tend to take minority stakes in wells, to minimize risks. Day rates on deep water rigs run $350k - $450k. Not to mention all of the other things that have to be bought, and other suppliers that have to be paid.

 

Also you have to keep in mind that not all wells work. What happens if you just spend $30 - $60 million and drilled a dry hole? If I were investing in smaller companies I would keep it on the shallow water / land. Drilling the hole is not the problem, its all the risks associated with it. 

[tiddman]

Yes but the flip side is that the upside is probably multiples, which you aren't going to get with a major oil company.  ATPG might be an all-or-nothing proposition, but might have a place in a portfolio.  My point is just that the drilling isn't done exclusively by the majors, maybe predominately, but not exclusively.

[Myth465]

Yes but the flip side is that the upside is probably multiples, which you aren't going to get with a major oil company.  ATPG might be an all-or-nothing proposition, but might have a place in a portfolio.  My point is just that the drilling isn't done exclusively by the majors, maybe predominately, but not exclusively.

 

You are definitely right, a few non majors drill offshore in deep water. They are call options on successful drilling, and do offer great upside should they hit a nice find. My guess though is that changes going forward with them thinking about removing the liability caps, I think ATPG may have big problems because they will have a hard time finding affordable insurance for deep water drilling, and I am not sure how self insuring will work when your market cap is less than a billion.

 

Eric, Talked about the high risk high reward prospects, earlier in the thread. Basically currently you can wild cat and if you win you keep the upside, if you loose taxpayers get the downside. ATPG has a place in portfolios just like BP does, but not in mines.

[tiddman]

I am not sure how self insuring will work when your market cap is less than a billion.

 

Looking at BP, self insuring doesn't seem to work too well when your market cap is over $100 billion either :).

 

[Myth465]

I am not sure how self insuring will work when your market cap is less than a billion.

 

Looking at BP, self insuring doesn't seem to work too well when your market cap is over $100 billion either :).

 

 

Lol, good point. It seems to be a bad option either way.

[valuecfa]

http://online.wsj.com/article/SB10001424052748704256304575321071084647654.html?mod=googlenews_wsj

 

http://blogs.wsj.com/source/2010/06/21/anadarko-would-take-huge-hit-if-forced-to-pay-into-bps-20-billion-oil-spill-fund/

 

Anadarko Petroleum Corp. said it plans to refuse to pay its share of the cleanup costs for the Gulf of Mexico oil spill. Anadarko owned 25% of the leaking Macondo well. Could be yet another long drawn out legal battle for BP.

 

Long BP (as of today)

[biaggio]

what do you think of SU?

 

Drilling costs -offshore + onshore are sure to rise as a result of the BP spill.

 

Cost of oil will likely rise, especially if economy continues to recover.

 

SU does not depend on drilling (mines the oil), but will benefit from rise of oil.

 

Has 27 Billion barrels of oil, has a market value $52 billion (selling at <$2 /barrel of oil). This seems cheap?

 

Has had bad environmental reputation, but perhaps the oil sands don t look so bad compared to the oil messing up those beautiful beaches.

 

Potential catalyst: with China allowing their currency to strengthen perhaps they will want to buy some cheap energy companies.

 

Disclosure: I own small position in SU + recently added small position of JOE

[Myth465]

I like SU, CNQ, Canadian Oil Sands but you are right they too may have environmental issues. I dont own them.

 

----

 

I think Jim Rogers has good advice relating to BP. I have found the same with problem companies. They are slow to trade up and you can buy them at fairly low prices once all the bad news is out. ATSG is a good example.

 

http://jimrogers-investments.blogspot.com/2010/06/cnn-money-video-interview-buy-silver.html

[biaggio]

Myth,

 

Thanks for the Jim Rogers link.

 

I always enjoy listening to him, though he seems to be preaching the same for message for years, that being the devaluation of various fiat currency,+ the depressed value/investment opportunity in commodities. His thesis makes seems to make sense.

 

anyone here making any direct investment in commodities? I have always thought they were high risk + speculative. I prefer the idea of being a buyer of "businesses".

 

I still have a high percent in cash, which helps me sleep well at night, but am worried about the devaluation of cash over time.

 

[roundball100]

Has there been any discussion on this thread of what the impact, if any, there will be on nat. gas companies, as a consequence of the whole BP/gulf situation? 

[SharperDingaan]

 

"I like SU, CNQ, Canadian Oil Sands but you are right they too may have environmental issues"

 

Look at the Statoil ADR trading on the NYSE. Who your partners would be, & their track record.

http://www.statoil.com/en/About/Worldwide/canada/Pages/default.aspx

 

SD

 

 

 

[T-bone1]

Has there been any discussion on this thread of what the impact, if any, there will be on nat. gas companies, as a consequence of the whole BP/gulf situation? 

 

I haven't seen anything, but offshore (and particularly deepwater) natural gas is less and less important with the growth in shale-gas production in the US. At this point even hurricanes that shut down production in the gulf don't have much of an effect on natural gas prices, and Lousiana has become a net importer of gas due to the decline in Gulf production (although the Haynesville shale will change that over time). I'm not sure of the exact number, but I believe Gulf production is 10-15% of total US gas production at this point. Down from 25-30% ten years ago.