Friday, June 11, 2010

Don't kill the Goose!

The tragic Gulf oil spill saga continues.

I’ve not yet blogged about it as I just don’t know the precise details.
Rather than engage in gratuitous speculation based on the various conflicting opines, I prefer to resort to my usual trusted Wikipedia, and this is what I learn. Is it correct?
Probably – but if not, go and make the corrections there, not here – that’s the advantage of it being a wiki!

Anyway, from the little I understand, the task at hand is the following

A. Urgently
  • plugging the leak
  • as long as that is not possible, limiting the amount of oil escaping the well
  • capturing what has already leaked with a special emphasis on preventing it from reaching the coastline
  • mitigating the impact to the environment and the people affected
B. Long Term
  • environmental restoration
  • full compensation
  • prevention of similar accidents
Am I missing anything?
Yes I am: retribution if and where warranted - but not right now!

The pathetic blame game, the disgraceful politicking, the stupid alternative instant out-of-the-box solutions and the even stupider conspiracy theories are merely detracting from the urgent job at hand - and anyway, is there really any doubt that BP are doing what they can, and that if there is anybody equipped with the required know how, manpower and hardware, it would be them?
If, and that is the question, the job can be done at all?

And what, please, would be the alternatives?
The Government – and since when have they ever been able to mount a successful operation of these dimensions? Scientific geniuses and inventors? Trust me, if they were credible, BP would have hired them in a blink!
James Cameron and of all people, Kevin Costner? Right!

Plus, and more importantly, there is this.
BP has pledged to come up for all associated costs. That may, or may not be credible - but those are certainly statements they can be held accountable for in the future, the more as they can undoubtedly afford to foot that bill.

That is, if you don’t kill the Goose.
Until recently, BP was one of the most successful and most prosperous companies on the planet.
Net profit for 2009 was $ 14 billion, net profit for Q1 2010, $ 5.6 billion with $ 6.8 billion in cash reserves – more than adequate for paying for the costs incurred so far ($ 1.25 billion) and even, over time, for footing the entire bill which is currently estimated to reach up to $ 40 billion.

But now BP is in dire straights.
Ever since the spill, the share price has been on the decline (read this: very astute!) and after the recent sell-offs, the company’s market cap has been more than halved, from approx. $ 185 to approx. $ 90 billion and the price of its bonds, an indicator for the level at which it can borrow, has completely collapsed.
IMO, this has nothing to do with BP’s financials that continue to be strong – it is the direct result of a change in confidence following weeks of BP bashing and above all, the disgraceful politicking and increasingly strident and threatening undertone of the US Administration.

I ask: cui bono?
Contrary to the US Government who can, and continues to print and borrow the money it does not have, BP’s cash flow has to be earned.
Granted, those 95 billion that have been wiped off have not been lost by BP, but by its shareholders, many of which are pensioners. But as a consequence, BP’s financials will undoubtedly degrade as investor confidence erodes and its cost of borrowing increases – and I may add, should BP heed the idiotic suggestion by several politicians that it ought to scrap the next dividend, it would impact its faculty to raise money even more severely and once again penalize the very much wrong people.
Thankfully, so far, the board has not caved in to the pressure - but let there be no doubt that if the current irrational hysteria continues, BP may well find itself in a position where it could go bust or get gobbled up by a competitor.
Such is the power of market sentiment.

And if so: who is going to do the job and pay for the bill?

1 comment:

Robert said...

I am glad there has been less useless rants by the celebs and politicians during this disaster. Maybe I haven't been paying enough attention but it seems like less than before.
Even though this has the unlimited negative potential, I believe no one want this to be stopped sooner than BP. They have lots of friend$ in Washington but that will be of no use if they don't fix this. I don't want the army core of engineers taking the lead on this.
I worked in oil & gas for 4 years. I loved the money but hated what was happening to the environment and always voted against pro-oil politicians.
Plug baby plug!