At what price BP?

ok. the benefits of owning DO just got a touch bigger today.

benefits in short:

1. DO will lose pile of money by missing on contracts already booked (force majeure).

2. it is costly to relocate rigs - and it is costly to leave them idle.

3. many rigs in less locations means less received for each rig worldwide.

4. a large portion of new regulation costs is going to be born by drillers (at least initially). it is worth mentioning that one news that is not pretty (particularly for DO due to its north see presence) was completely skipped today because of the spill No.2. see e.g. http://www.offshore247.com/news/art.aspx?Id=16849

5. if the new leak proves sizable BP will use every opportunity to shift as many litigation costs to DO as possible - well now that becomes scary (imagine the uncertainty). of course this would be DO = ZERO certainty in that case. DO's balance sheet can't withstand any decent costs.



With BP (British Pension) I am not sure but I guess it goes lower before creeping up. I can't see BP going to zero - it would have serious political ramifications. 15% of all dividends received by pension funds in UK comes from BP! Also lawyers can do miracles and before the deal is settled the ecosystem recovers on its own.
Still it is serious because now it is clear that there was at least 30kbpd leaking (after BP siphons approx. 15kbpd now). I believe that the number will be massaged down not only by BP but also by government to keep people less angry and settlement more reasonable/possible. After all imagine the situation if the BOP screwed up with a different company (like DVN/APC) - what a mess that would be...
 
Love your VW voting vs non-voting comment in an earlier post. THE perfect example.

Opportunity costs in the aggregate in life are real cost not hypothetical to me. I believe that the there will be one dividend cut (or elimination) and not a series of rolling cuts. If political pressure causes a cut -- much more likely than expenses causing it -- the board will insist on retreating to ground they can hold for the long haul.

Since the common is a core holding in so many UK pension funds and similar income driven accounts the dumping by those holders will, in my opinion, represent forced liquidation below value. Huge holders who can not reconcile holding the common without a payout that matches their actuarial projections.

While there may be somewhat lower prices past that huge forced liquidation it is seems unlikely that a panic will ensue after the stock settles post dividend cut. I would agree with your concern if I were buying now hoping the dividend holds: Premature, far to risky and leaves too much on the table. But once the cut is announced the equation really will change dramatically. The shakeout will be massive and those holding the stock will then fit the classic definition of strong hands. I have no need to buy the bottom. I seek to put some chips away at a very attractive "yield to maturity" ... that maturity being the fairly distant point -- at least 10 years in all probability -- I liquidate the position. This is not a trade for me but rather the rarest of things in my playbook -- an investment.

Or, at least that is how it looks to me.


Quote from Ghost of Cutten:

Why not wait for a true panic in the stock, where investors liquidate en masse, before getting long? That will reduce your risk and boost your return. The only reason to avoid that is if you think no panic selling phase will take place. Given the history of these kind of events, that might be an optimistic assumption.
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When this thing first happened, I thought "This is going to be an absolute total disaster."
As of now, there are reports of oil seeping from the seabed.
What does that mean? That the well casing, which is under that, was damaged, and where we now have one explosive geyser we could have many more.
Going long this thing is not what you want to do. This disaster is very far from resolution.
Remember Arthur Andersen? This could be that.
 
Quote from trefoil:

When this thing first happened, I thought "This is going to be an absolute total disaster."
As of now, there are reports of oil seeping from the seabed.
What does that mean? That the well casing, which is under that, was damaged, and where we now have one explosive geyser we could have many more.
Going long this thing is not what you want to do. This disaster is very far from resolution.
Remember Arthur Andersen? This could be that.
More...

The pressure is 2,400 psi at one mile depth. That pressure is what keeps the oil from seeping up through the sea floor. Approximately twice the oil stored in a supertanker is released every year in the gulf, passively, at lesser depths.
 
BP new 52 week lows, why anyone would buy this stock is beyond me, there are hundreds of unanswered questions and lawsuits upon lawsuits coming up. That 9% dividend will start to disappear.

Stock is headed down a lot further, get ready.
 
FU FU FU FU FU FU FU FU FU FU FU FU FU FU FU

Ok feeling a little better but damn it who the hell is at the helm?? It would appear no one.

I read today that they have reached capacity on the ship receiving the oil so now they are waiting for another ship to come and that will allow for greater capacity. ARE YOU SH*TTING ME???? why in the name of allah is that ship not already there??? What would happen if the ship they are currently using caught fire or had some other issue??? Why are they only able to do one thing at a time (and from what it appears so far not well) and not multitask? What else could that ship along with two more backups be doing that is more important?

Did anyone watch the video of the cutting of the pipe and the placement of the top hat? My god was that painful. I thought ok, maybe they are just dealing with feedback from the robots and need to go slow. Thats not it folks. They are totally 100% without any real form of leadership. My best guess is that the executives are used to things going easy and that money can buy their way out of any problem without having to really buckle down and rolling up the sleeves. If this was two weeks into the spill I would be out of line but after more than a month and they are still waiting for a ship to arrive it is clear that this has yet to become a priority for anyone.

Every single step of the way has been one slow step at a time like a kid that has to wear a helmet to protect from falling.

Do I know a lot about oil rigs? No I do not but I do know that in an emergency situation you do not try one thing and if it fails start on the next thing and figure it out. A real leader would have plan A B C D E and F stacked up and ready to go so as each fails the next is immediately put into action. You don't need to be an oilman to know when time is of the essence and you have a bottomless bucket of money you take whatever you need and times it by 4 so that teams of people are working on the problem independently and together so that things get done.

I also read that they are going to use the top kill items to reverse the process and recover some of the oil. Well no sh*t I figured that out last week myself and the oil/gas would not meet the water to form the ice that blocks other pipes. Speaking of the BOP why can they not unscrew several pipes and start pumping out oil to go to the surface?

hurricane season is hear and the BP answer to that is that they will just cut the cord and let the oil dump into the sea while the wind blows. Are you fcking kidding me??? what do the other rigs do when this happens? I am guessing that they shut the wells down via the BOP and what needs to happen between now and then is a way to but the flow from the well. I am having a hard time understanding how the people that designed and built that thing can not come up with a way to replace whatever part is "broke" or making the rest of the BOP "broke" so that oil stops flowing.

How can anyone have confidence in management when they are in the fix they are in and yet they do not yet understand that they need multiple backups as time is of the essence here. Another idea is to use the manifold on the bottom that was used to try to do the top kill in reverse and recover oil this way. Sounds like a great idea why is it not already done? Why in this Sh*t storm are they not able to multitask? I would surely not want to go into battle with the management of BP as the leading officers.

There is no reason for this spill to be still going on other than lack of management. The top brass needs to stop waiting for others to make things happen and make it happen. In a conference call Tony Hayward said that BP was going to have managers manage the spill so that the executive management can focus on the company. I have not read that Mr. Hayward is at the spill site and if he is I will stand corrected. Otherwise Mr. Hayward you have it ass backwards. Mr. Hayward you need to delegate the rest of the company to the second in command and get yourself to the spill and STAY on the ship until the job is finished. Nothing in the operations of the company is more important and nothing else will put a spring in the step of those that may view this is just another day on the job as having the CEO there. Showing up once in a while doesn't cut it and staying at a hotel doesn't cut it either.

Regardless of how slow they are going it does appear that in about a month the worst will be over or at least the end will truly be in sight. As a stockholder getting from here to there appears to be filled with peril. I wrote down a large loss with BP today and I still have a large position that I built up today thinking we may be hitting the sea floor in the price. As I am losing confidence quickly I started to write calls against the stock into the close to help tolerate another piss poor "we are going to do ___ in a few days" response to the spill.

BP has been a great trade up to today for me and even with the drawdown of today its still not all that bad. If thing can actually pop up tomorrow which may or may not happen it could be right back into a great trade again.

I think the biggest mistake so far has been not simply writting puts against the stock so that I can wait it out. After watching the IV imploded yesterday I was getting the feeling that the price was bottomed out and that we may start to see some real buying step up. I think that may be a little further off as was clearly shown today.

Best of luck to all
 
Quote from atticus:

Wow, you're thin-skinned. I don't recall an ad hom attack in that post, and my quote in your reply reads the same as I wrote it. My comments on HNR's turnover made your pussy wet?

So to get it straight... now you're suggesting shorting DO and buying BP. okok, well that certainly makes the math easier when you're eating shit in 60 days.

EDIT: dhpar, aaa, and cutten seem to have some motivation to save me from myself. You can all eat a dick-steak sandwich in 60 days, or I may have to eat my words (and the sandwich). Either way, 60-days and counting. I am done arguing with the remedials. There is nothing to say where the switches are concerned until 60-days has elapsed.

From 6/4/10 close

DO outperforms BP
DO outperforms SLB
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You misunderstand me. I was not expressing an opinion on your trade, only agreeing that it was not stat arbitrage. I have no opinion on DO and would avoid BP. There is a non-trivial risk that BP goes bankrupt, a risk that is not reflected in the market in my opinion. BP faces unquantifiable liability, plus the real likelihood they will be barred from government business and any more drilling in the Gulf.

I would expect SLB to recover faster than either however, since Gulf business is a far smaller of their revenue.
 
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