“A stands for Apple, B stands for British Petroleum” is what I imagine kindergartners will say one day when learning their ABC’s and while this image might is quite unrealistic, I somehow do hope that these last few months will be remembered for the future.
Given the fact that I myself do own a car; therefore, oil prices tend to matter to me on a more personal level, thus I’ve been following the story of BP (British Petroleum) and their latest mishaps for quite some time. To begin with, we need to mark that anything that is to be said about this specific company and their performance should not cast any shadow on Great Britain as the company even given their name does not bear a close relationship to the country as it is a Joint Stock Company and by now the amount of shares owned by American investors is approximately as large if not larger as the investment capital from Britain.
The story
While the story of BP and the infamous oil spill surge in the Deepwater Horizon just off the coast of the Gulf of Mexico starts off on 20th of April with, quite literally, a blast. We should point out that BP does not have the best history when it comes to safety, as previously this year they were charged for disregarding 97% of industry safety regulations for two of their oilrigs.
However, returning to the current situation and the oil leak. It seems quite noteworthy that since the start of the incident the stock price has dropped more than a third and the future of the company did not seem that bright especially by the end of June. This was not helped by the fact that seemingly every attempt of BP to solve the problem came undone by forces of nature, thus what started as a minor mishap became one of the largest ecological disasters that the United States have faced in their history.
Source: Data from New York Stock Exchange
BP also received a lot of negative press mostly because they seemed to underestimate the severity of the leak on several occasions often providing the public with numbers that experts quickly judged to be too optimistic. Furthermore, some BP’s executives received criticism from the US government for playing the “blame game” and being too quick to dismiss their own shortcomings and blaming their co-workers.
As you can see in the graph above these events had severe effect on the share price of BP all throughout the previous months.
The outlook
While it seems that for now the oil leak has been managed and the work on retrieval of the spilled crude oil is almost completely finished. We can observe that share price has begun to recover thus the future prospects of the company have improved although they still need to sell quite a bit of their assets (30 billion dollars worth in the next 18 months).
Unfortunately, the company still faces fines against them for the wrongdoing and the total amount due can be almost quadrupled if gross negligence is proven by investigation in the matters at hand and thus reach 4,300 dollars per barrel (over 21 billion dollars total). Therefore, the future of the company might still be on shaky grounds.
Although the future is still unclear for BP, lets just hope that (borrowing the words from Roosevelt) that these unfortunate events will live on in infamy, and that safety regulations will be enforced more carefully from now on, so that such damage to both environment and shareholders does not recur.
Written by Uģis Rožkalns on behalf of SSE Riga Investment Fund
