Commentary By Ron Beasley
On the fourth of May Adam Sharp of Energy and Capitol saw BP as a buying opportunity. By the first of June he had done an about face.
Three weeks ago I wrote an article titled, "Hold Your Nose and Buy BP Stock." That made writing this piece a bit... awkward.
But I'm not one to shy away from mistakes. It was a bad call.
That said, I sold my BP shares for an 8% loss a few days later (and posted a comment to notify readers). That was around the time when it became apparent that BP and reality were out of touch.
While it's true that Exxon was able to survive the Valdez the Deepwater Horizon disaster is looking a lot worse.
The Valdez grounding dumped 11 million gallons of crude into the ocean. Using the most conservative estimates, the Gulf disaster has already released 18 million gallons, and that number may be much higher � 100 million or more.
The Gulf Coast is also a much more important (environmentally and economically) area than Prince William Sound, where the Valdez went aground.
In inflation-adjusted terms, Exxon's Valdez disaster cost around $7b all told. This is going to be much, much bigger than that.
Nobody knows exactly how much the spill will end up costing BP. Early estimates ranged from $500m to $3b. Those estimates have been steadily rising.
I'd be shocked if the total bill came in at less than $50b; $50b is the low end of my range, which goes up to around $200b.
Could BP raise $200b if they needed to? Maybe, but I doubt it... Such a huge capital raise would be unprecedented, as far as I know.
One of the other majors may step in at some point and buy BP, but that would be taking a huge risk (and may not even pass scrutiny over monopoly concerns).
And it's not over yet. The "top kill" failed and we still don't know if or how well the cap will work. The relief well is still at least two months away and it could be months longer.
The more I learn about this debacle and BP's disastrous management of it, the less confidence I have in their survival. Their safety and environmental record is simply atrocious, as shown by this shocking report by the Center for Public Integrity.
I honestly don't see how BP can survive in its current form. Maybe they can, but I'm starting to think they're destined for a date with bankruptcy...
Not mentioned in this article but important is that BP's other deep water project in the Gulf, Thunder Horse, is not living up to it's billing.
Thunder Horse field created huge excitement when it was discovered in 1999 in Mississippi Canyon blocks 788 and 822. Partners BP and Exxon announced that the field had a billion barrels of reserves. After nearly two years of production history on the field, it is becoming obvious to most outside observers that Thunder Horse field is not performing as it was expected to perform, if one is to believe the press accounts and specifications of the production facilities. If the field is underperforming, as the data available from the Minerals Management Service seems to indicate, this should be of concern and interest to those in the Peak Oil community, and to the world.
Thunder Horse was designed with an oil production capacity of 250,000 barrels a day. Clearly, it never hit that level, and seems to be already declining. If the field really had a billion barrel of producible oil reserves, it would take 11 years of production at 250,000 barrels a day to reach this amount�something that looks very unlikely to happen. There seems to be no production plateau, and it appears that production may be declining by as much as 25% per year.
This is not only more bad news for BP but may also cloud the economics of deep water exploration. It is certainly going to become more expensive because of additional regulation and the uncertainty will make oil companies take a second look. There is a cap to the price of oil. Our society isn't just fueled by oil it's fueled by cheap oil. Somewhere between $100 and $120 a barrel economic growth will stop and demand will drop off. Peak oil is really all about the end
Cross posted at The Moderate Voice
Very good question. The company may not be too big to fail but as market economics demonstrates with regularity any company with assets is never too big to be chopped up for body parts. The brand itself is looking more endangered than a brown pelican so by August real estate and oil streams may be all that's left. Poetic justice I say.
ReplyDeleteInteresting passing reference that "this should be of concern and interest to those in the Peak Oil community..."
In a world of skeptics (climate change as well as peak water, phosphorus etc.) this event can be a teachable moment. Some will remain too dense or proud to admit being wrong, but they will perish in a mudslide of reality when it comes. And that moment may be sooner than expected. A hurricane in the next several weeks could mark a tipping point.