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At what price BP?
- Thread starter Swan Noir
- Start date
Quote from atticus:
Bought more of the DO/BP pairs-trade at the closing print. DO will rally $2-3 tomorrow. Expecting spread to rally 1.00 or more. Cost basis of 21.88 across the book.
good for you. and quite possible today. DO was trading up 1 buck after hours already so it has a nice start against SLB too...which would lose you huge yesterday.
frankly these web trades are a bit of a nonsense. so far from reality - like where is the stop loss, what else defines the risk, what even defines the trade etc. but i will not rain on your parade.
gl
Regarding notions of BP going bankrupt - it is a UK-based multinational with ring-fenced US operations. Realistic worst case legally is the US assets get written down to zero. Reserves and revenues from the USA and Gulf of Mexico are about 1/3 of total BP activity. So that would be worth 1/3 of the market cap if they get sued into oblivion and lose the whole US/Gulf assets.
General S&P/oil-price decline and reputational knock-on effects outside N American maybe take it down to a 50% worst case loss of intrinsic value. Peak price was $60 so it's worth probably $30 as a conservative estimate (more if the legal issues get resolved), assuming it was not seriously overvalued at the peak.
Hence if you want value, you have to buy with sufficient margin of safety below $30. Personally I look for 50% discounts to conservative fair value, which means around $15 per share. Unless some other disaster occurs, I would see it as unlikely to have more than a 2-3% risk of permanent capital loss if you bought at those prices.
Remember that in late 2008/early 2009, pristine businesses with no problems sold for 50-75% discounts to fair value, and troubled businesses like LVS sold to probably 90% discounts to fair value. This time we don't have the same macro fears but it's quite possible that the stock falls 75% below its peak IMO. If you are less risk averse and more aggressive, I would say low 20s is about as high as it would be wise to pay.
General S&P/oil-price decline and reputational knock-on effects outside N American maybe take it down to a 50% worst case loss of intrinsic value. Peak price was $60 so it's worth probably $30 as a conservative estimate (more if the legal issues get resolved), assuming it was not seriously overvalued at the peak.
Hence if you want value, you have to buy with sufficient margin of safety below $30. Personally I look for 50% discounts to conservative fair value, which means around $15 per share. Unless some other disaster occurs, I would see it as unlikely to have more than a 2-3% risk of permanent capital loss if you bought at those prices.
Remember that in late 2008/early 2009, pristine businesses with no problems sold for 50-75% discounts to fair value, and troubled businesses like LVS sold to probably 90% discounts to fair value. This time we don't have the same macro fears but it's quite possible that the stock falls 75% below its peak IMO. If you are less risk averse and more aggressive, I would say low 20s is about as high as it would be wise to pay.
Some class action lawsuits against BP:
http://www.google.com/search?hl=en&...=&as_occt=any&cr=&as_nlo=&as_nhi=&safe=images
http://www.google.com/search?hl=en&...=&as_occt=any&cr=&as_nlo=&as_nhi=&safe=images
Quote from Ghost of Cutten:
Regarding notions of BP going bankrupt - it is a UK-based multinational with ring-fenced US operations. Realistic worst case legally is the US assets get written down to zero. Reserves and revenues from the USA and Gulf of Mexico are about 1/3 of total BP activity. So that would be worth 1/3 of the market cap if they get sued into oblivion and lose the whole US/Gulf assets.
General S&P/oil-price decline and reputational knock-on effects outside N American maybe take it down to a 50% worst case loss of intrinsic value. Peak price was $60 so it's worth probably $30 as a conservative estimate (more if the legal issues get resolved), assuming it was not seriously overvalued at the peak.
Hence if you want value, you have to buy with sufficient margin of safety below $30. Personally I look for 50% discounts to conservative fair value, which means around $15 per share. Unless some other disaster occurs, I would see it as unlikely to have more than a 2-3% risk of permanent capital loss if you bought at those prices.
Remember that in late 2008/early 2009, pristine businesses with no problems sold for 50-75% discounts to fair value, and troubled businesses like LVS sold to probably 90% discounts to fair value. This time we don't have the same macro fears but it's quite possible that the stock falls 75% below its peak IMO. If you are less risk averse and more aggressive, I would say low 20s is about as high as it would be wise to pay.
good post. that exactly reflects my thinking about BP floor value. I think that 30 is extremely cheap from the long term perspective. but could we see mid 20s? sure...
note that at $60 BP had already some reputation problems priced in - so in a way that gives you additional "buffer".
Any filling would be under Chapter 11 and not 7. A first year law student could preserve 50% of value by offering an settlement that precludes protracted litigation and if you are represented by top counsel you'll do much better. In 11 the system itself gives debtors an amazing amount of leverage if you are a real company and not Enron. Ghost, as you know I value your posts a great deal but I think in this case your valuation estimates are akin to saying the worst case for a guy crossing Broadway is that he gets hit by a bus and dies. What you say is certainly true yet I believe not the optimal way to capitalize on this opportunity.
I think a sharper pencil is called for here. Assuming the dividend has already been cut or eliminated (without that PA means little here) I would be loathed to wait beyond the first consolidation following the cut. If that comes at 26 ... so be it. If it comes at 22 ... all the better. I think a reasonable way to step in is to place a limit order at 22 now in the belief that there is simply value in catching this falling knife there (can't believe I am endorsing catching the knife ... lol) and if it consolidates higher on a $1 range chart (I think time is less relevant than range in this case) stepping up and buying it even as high as 27 or maybe even 28 the figure makes sense.
The assets here are truly first rate and if you have to take some heat to own them I say take the heat. There are very few companies in the world (really only Exxon, Shell and a few others) that would cause me to think this way. This is not some pig that someone lipsticked up. This is one of the world's great integrated oil and gas concerns. They are rarer than diamonds and this one may be about to go on sale. However, I do not think it will be given away. I think the proper buy will involve a bit of heat and therefore some risk. I do not believe we will see a print in the teens.
But, it is risk for purpose. This is a company that at $150 oil (a number that is conceivable to me in the next three or four years) will pay enormous dividends. Much higher than most American companies would under the same conditions. Can anyone spell M-E-R-G-E-R between Shell and BP? Unilever is the blueprint and these two governments have worked closely on commercial terms for centuries. A distinct possibility.
I think a sharper pencil is called for here. Assuming the dividend has already been cut or eliminated (without that PA means little here) I would be loathed to wait beyond the first consolidation following the cut. If that comes at 26 ... so be it. If it comes at 22 ... all the better. I think a reasonable way to step in is to place a limit order at 22 now in the belief that there is simply value in catching this falling knife there (can't believe I am endorsing catching the knife ... lol) and if it consolidates higher on a $1 range chart (I think time is less relevant than range in this case) stepping up and buying it even as high as 27 or maybe even 28 the figure makes sense.
The assets here are truly first rate and if you have to take some heat to own them I say take the heat. There are very few companies in the world (really only Exxon, Shell and a few others) that would cause me to think this way. This is not some pig that someone lipsticked up. This is one of the world's great integrated oil and gas concerns. They are rarer than diamonds and this one may be about to go on sale. However, I do not think it will be given away. I think the proper buy will involve a bit of heat and therefore some risk. I do not believe we will see a print in the teens.
But, it is risk for purpose. This is a company that at $150 oil (a number that is conceivable to me in the next three or four years) will pay enormous dividends. Much higher than most American companies would under the same conditions. Can anyone spell M-E-R-G-E-R between Shell and BP? Unilever is the blueprint and these two governments have worked closely on commercial terms for centuries. A distinct possibility.
Quote from Ghost of Cutten:
Regarding notions of BP going bankrupt - it is a UK-based multinational with ring-fenced US operations. Realistic worst case legally is the US assets get written down to zero. Reserves and revenues from the USA and Gulf of Mexico are about 1/3 of total BP activity. So that would be worth 1/3 of the market cap if they get sued into oblivion and lose the whole US/Gulf assets.
Quote from atticus:
Bought more of the DO/BP pairs-trade at the closing print. DO will rally $2-3 tomorrow. Expecting spread to rally 1.00 or more. Cost basis of 21.88 across the book.
DO/BP spread up almost 4 today to 26.27, a two week high. DO/SLB spread up 1.60.
Covered half at 26.25 for +4.37, will try to hold the remainder to 36.00.
Quote from atticus:
DO/BP spread up almost 4 today to 26.27, a two week high. DO/SLB spread up 1.60.
Covered half at 26.25 for +4.37, holding the rest to 36.00.
LOL - why haven't you been that fast with your posting yesterday? it can't get more childish than that. have some class kid...or at least ask your parents what it means.
good you made some money (if you did).
Yea, I have to echo this sentiment - it was almost like they didn't expect the latest cap effort to work or work effectively, if they had they certainly would have aligned the resources to deal with the collected oil ahead of time.Quote from Robert Weinstein:
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?
Like you, I also wondered why they weren't using the existing connections on the BOP to suck oil if they already had the lines connected to them for the failed "top kill" it should have been trivial to use them to start pumping oil out.
I'm hoping it is the case of there being larger technical issues that don't make it into the news soundbites to explain these lapses but sometimes its really hard to imagine that they couldn't have done a better job of planning/multi-tasking, as you said.
Quote from dhpar:
LOL - why haven't you been that fast with your posting yesterday? it can't get more childish than that. have some class kid...or at least ask your parents what it means.
good you made some money (if you did).
The DO/BP spread was up 1.00 on wide markets AH yesterday. My point was to make a case for a $3 rally in DO. Yeah, the stock was up $0.30x$0.80 AH.
Thanks for your concern, but I had an end of year school picnic at the close. I've got an alibi Sherlock! Wife and kids will corroborate. I've got to leave now to run some errands; Costco, Trader Joes, etc. I'll be fine.
Edit: 26.50 on the spread!