BP & Chapter 11

[Petsamo]

Quote from Capablanca:

Wouldn't something like this have insurance?

Why should you have insurance if you can pay off accidents in their entirety? A lot of people believe this accident won't bankrupt them.

Assuming they did have insurance, would the insurance company be able to pay up? If BP is expected to have a problem paying, a much smaller insurance company certainly will.

 

[Gabfly1]

Quote from NoDoji:

BP's quick ratio is poor. Fundamentally, a long term investor would look at their quick ratio of 0.75 and have second thoughts about investing in such a company despite the high dividend...

While it is certainly less than ideal, it does not appear to be significantly astray of the industry norm, which was 0.87 in 2006.

http://www.bizstats.com/reports/corp.asp?profType=ratios&coding=21.1.110

The 2007 industry numbers are not much different:

http://www.primeindustryreports.com/ireport.aspx?tr=12124

Further, Exxon's quick ratio as at FYE 2009 was 0.74, while ConocoPhillips's was 0.58. I arrived at those calculations from the financials available at Yahoo Finance.

I don't pretend to know the sector and I haven't conducted any analysis of either BP's or the industry's financial performance, but I don't think you can draw many conclusions from a single ratio in isolation of either industry norms or trend.

 

[NoDoji]

Quote from Gabfly1:

I haven't conducted any analysis of either BP's or the industry's financial performance, but I don't think you can draw many conclusions from a single ratio in isolation of either industry norms or trend.

I agree it's just a small piece of the picture. But for those looking at BP as an investment now because it's "on sale", it's an important part of the picture.

I've found, in my very limited time as an active market participant, that when company-specific bad news drags down all the stocks in a sector, the real bargains are obtained by investing the strongest companies in the sector, not in the company that's in big trouble just because it's fallen the most. It's human nature to want the best deal, but you do get what you pay for.

CVX has strong fundamentals and a nearly 4% dividend. That's why after the 2008 crash it recovered more robustly than its peers. Or look at BPT, a royalty trust that pays a 9% dividend and recently approached its pre-crash highs (we've owned BPT for many years).

 

[Gabfly1]

Okay, and I'm not making a case either for or against an investment in BP because that's beyond the scope of the single point I wanted to make. I just take issue with placing too much importance on any single ratio without determining the underlying and the industry comparative. For example, an argument can be made that a comparatively rich quick ratio is suggestive of inefficient use of capital. It can also reflect a problem with receiveables collection, depending on its composition and turnover. These are just hypotheticals presented for the sake of argument. Just that I had worked in corporate banking several years ago, and industrial finance and leasing before that, and I learned not to treat any single ratio like a silver bullet. Sorry if I'm belaboring the point. Carry on.

 

[AAAintheBeltway]

Quote from asiaprop:

how i come to the conclusion?

a) as I pointed out the accident did not occur in US territorial waters, which has a lot of legal implications.

b) let me ask you how you come to the conclusion this was "gross negligence"? This has not been established as a fact at all, no matter the speculation that is going around.

c) BP agreed to pay legitimate claims, which surely does not include the 60 billion lawyers now mention for civil lawsuits. Ridiculous!!!

d) It is anything but given that they are subject to US courts. As I said they are operating OUTSIDE of the American territory and they are not an American entity either.

e) Why would the government charge tens of billions? For what? The estimate cost adds up to about 1.5 billion. Multiply this by 4-5, including all cleanup efforts, and you probably get a pretty accurate estimate, but tens of billions is ludicrous. For what? To make up for the fading investments that previously came out of China?

Mark my words, push BP a lot more and you will have the British government recommending BP to show their big middle finger to all Americans and pull out, so simple. Nothing that the US can do nor will get.

Let me put this as politely as possible. You don't know what you're talking about. How could BP not be subject to jurisdiction in the US when it is drilling under a license awarded by the US government and it caused tort damages in the US?

The issue of negligence or gross negligence, with all its possible ramifications, is an issue that will be decided by juries in the affected areas. Considering that we already have testimony that BP's manager on the rig overruled heated objections from Transocean and ordereds them to pull the mud from the hole, causing the blowout, I am relatively confident how they will rule.

BP does not have the ability to pull out of the US and somehow escape liability. They have assets that can be attached. Judgments can be enforced in UK courts. They also have a huge business with the Defense Department to consider.

BP is an enormous company and may have the wherewithall to pay all claims, but the matter is not clear from doubt. The fact they haven't capped the well yet and that the flow is now more than four times their original estimates are not encouraging.

 

[AAAintheBeltway]

Quote from Robert Weinstein:

Average full time attorney bills about 1400 hours per year.

I am unsure where you would get the number 200 attorneys working on the case at once? If appears to me that perhaps you worked the numbers backwards with a total cost and then tried to figure out what it would take to get there.


I would be willing to agree that the lead attorney (or even 2/3 leads) could get $1200-1500 per hour but a lot of legal work is done by non attorneys and they are going to bill out with a blend of paralegals/attorneys at $200-400 per hour(for the top lawyers that BP would hire) and sliding down lower as you add more and more people. i could see 12-20 working on the case if calculated as full time man hours full time people but it is hard to imagine a legal team larger than 20 during the peak of litigation and less otherwise. Take a look at other major cases like Ford Pintos, breast implants, asbestos cases. Enron which I believe is the largest or one of the largest was under $700 mil and it was easier to jack the fees on that case due to the fact that enron didn't have anyone at the helm and no chance of getting any more business out of them. Plus that was a different type of case with plaintiffs having bottomless pockets and no hurry to settle.

of course you also have to account for much of the legal work is done as this is not new law with BP already having on staff lawyers and I don't know this but would guess that they have law firms on retainer which will also tend to mitigate the legal fees.

If you want to get really super crazy and push the limit hard you could say that the legal fees may add up to a billion dollars. I think it will be south of 500 million dollars but you can stick with 2 billion if you like. Even if you went with 2 billion and your numbers are correct, how does that materially hurt (as in put them out of biz???) BP over 10 years? That would be about $200 million per year and BP is making more than double that per week with oil at $75

Lastly, even if BP is on the hook for 100% despite having partners you can count on those partners covering some of the legal costs as anything that is mutually beneficial will be shared. Just because BP is the only name coming out of Washington and it keeps things simple for the dolts watching the TV does not mean they are the only ones putting up a defense.

On a side note it will be interesting if the rhetoric coming out of DC ends up driving the price of oil up and slowing down the economy which ends up costing more jobs and losing more votes than bashing BP gains votes. I think it is pretty clear we see a lot of new faces in DC after November.

While I agree with a lot of what you say, I can assure you that for big firm lawyers working fulltime on a big case, logging 2500+ hours a year is not only doable but pretty much expected. I also think you're way underestimating how many lawyers would be involved. I would say hundreds. Don't forget there will be multiple cases involving four or five state governments, federal government enforcement actions, a number of very large class actions for property damage, lost wages, business damage, etc, plus cross claims among the companies involved. The Exxon Valdez cases took 20 years to resolve. That's a lot of lawyers billing frantically for a lot of years, even if they don't take quite that long.