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BP oil spill

Do You Really Want BP To Go Bankrupt?

July 3, 2010 By 3 Comments

There is a huge public outcry against BP (NYSE: BP) and rightfully so. The oil conglomerate’s lax standards and reckless behavior has led to the greatest oil spill that we have ever seen. Hundreds of thousands of people are boycotting BP stations and refusing to buy their gas there. Others are rooting for a BP bankruptcy. Although BP should have to pay every dime back to claimants harmed by the oil spill, a BP bankruptcy is not in the best interests of the United States.

Here are 3 reasons to root against a BP bankruptcy.

1. The federal government would be on the hook for BP’s liabilities.

A BP bankruptcy means that the company would be unable to pay back all of its liabilities. If BP declares bankruptcy then the government would be responsible for paying off all of the damage claims. The federal government would have to reimburse fishermen, oil rig workers, cleanup crews, and other employers. More than seven million businesses have been affected by the BP oil spill. If BP defaults then taxpayers are on the hook for all of the compensations claims.

2. The United States would increase its dependence on Middle Eastern oil imports.

BP is the only large integrated oil company that does not import a large percentage of its oil from the Persian Gulf. In 2009, Exxon (NYSE: XOM), Valero (NYSE: VLO), and Chevron (NYSE: CXV) imported 26%, 29%, and 36% of their oil from the Persian Gulf. Each of these companies imported over 100 million barrels from the Gulf. BP North America imported only 10 million barrels from the Persian Gulf which was less than 6% of its total imports. A BP bankruptcy would mean more U.S. dependence on Middle Eastern oil.

3. The number of jobless Americans would rise even further.

A BP bankruptcy would hurt all of the small business BP station owners. The majority of BP gas stations are independently owned and operated. Approximately 90% of BP gas stations are independently owned which means that a BP boycott hurts store owners and not BP. BP makes its money on oil exploration and drilling. A long term BP boycott will just increase the unemployment rate by putting thousands of station owners and families out of business.

As a BP shareholder, I would obviously be against a bankruptcy filing because it would completely wipe out my equity position. But as you can see a BP bankruptcy would have a ripple down effect on all U.S. citizens as well.

What do you think?

 

Photo by: showmeone

Filed Under: Investing Tagged With: , ,

Does The Government Have The Right To Make BP Suspend Its Dividend?

June 9, 2010 By 10 Comments

There is increasing speculation that federal lawmakers will force BP (BP) to eliminate its $10 billion dollar dividend payment due in July. Lawmakers are concerned as to how it will look for BP to pay a dividend while the Gulf of Mexico is still gushing with oil. It appears more likely than ever that BP will suspend its July dividend payment in the face of mounting governmental pressure. The question remains, Does the government have the right to make BP suspend its dividend?

The Government’s Take

1) It doesn’t look good from a political perspective to see BP shareholders receiving cash at a time when there is a huge oil spill caused by BP.

2) BP needs to preserve capital as the company does not know the extent of its liability. There will be huge liability claims from deaths, injuries, unemployment, and environmental damage.

3) It’s in the best interest of BP to eliminate its dividend if the oil company wants to remain an ongoing entity. The $10 billion dollars saved could help BP potentially avoid bankruptcy.

A Shareholder’s Take

1) As a BP shareholder, I would prefer if the government left any decisions on a dividend cut up to BP. It may not be politically pleasing but decisions on company operations should be left up to company management. It would make sense if the government forced BP to suspend its dividend because the company took a government bailout. But that is not the case at this time.

2) The dividend is one of the only reasons left to own the stock. Shares have dropped almost 50% and are having trouble staying above $30 now. A massive selloff would likely take place if the dividend is eliminated. 

3) The dividend has no effect on BP’s ability to clean up the oil spill. Regardless of whether or not BP cuts its dividend, the Gulf oil spill will not be cleaned up any faster.

Final Thoughts

I don’t believe that it is the government’s place to interfere with the operations of a company that it has no financial stake in. BP will have a hard enough time trying to remain a stand alone entity after the gulf spill crisis is over. If the dividend is eliminated, I think that the majority of investors will jump ship.

 

Photo by: futureatlas.com

Filed Under: Investing Tagged With: , ,