The three-month saga that is the Gulf oil spill isn’t as bad now, but it’s not close to being over. Once BP stopped the flow of oil into the Gulf, some investors showed a bit of optimism by buying shares of the company on both the FTSE and NYSE. However, it’s not all roses from here.
On Tuesday, shares of BP closed at 387.45 on the FTSE and 35.56 on the NYSE—both down very slightly, but still well off their 52-week highs of 658.20 and 62.38 respectively.
While the desire to get in at the bottom might be propelling some investors to buy shares of BP, there’s still a lot of trouble on the horizon and the company’s stock on both exchanges has the potential for more downside.
CNN Money reported today that the fines by the U.S. government could be fairly steep. In fact, those fines alone could soak up all of the $20 billion fund BP had set aside for compensation to disaster victims. A Justice Department spokeswoman said that BP could be responsible for paying a fine of up to $4,300 per barrel of oil released into the Gulf.
Just how many barrels were leaked into the Gulf? Estimates have ranged around 60,000 barrels per day. Could it be much higher? One can’t take any comfort in that figure, because of how shaky these estimates have been. First it was 1,000, then 10,000 then 35,000 and finally 60,000. Could BP be fined on 100,000 barrels per day?
The political climate in the U.S. is one that demands the heaviest fine possible. The government is in a position where it must make a strong statement to the American people that BP will suffer. After all, many were calling for criminal prosecution of BP executives.
Today, U.S. President Barack Obama met with British Prime Minister David Cameron and BP was the hot topic. Cameron understands the anger of the BP incident and is working on smoothing relations.
And what about looming court cases? While BP has the $20 billion fund setup to compensate Gulf victims, it may need to raise more capital by the time all of this is over. Perhaps in a preemptive move, BP is selling some more assets. Reuters reported today that BP will raise about $1.7 billion by selling assets to Vietnam and Pakistan.
As of now, BP has spent close to $4 billion cleaning up the spill. Perhaps the most telling statement about upcoming BP financial issues is one from Obama’s administration, which said there isn’t a cap on BP’s liabilities.
While BP stock might seem tempting, seeing as it’s down heavily off its highs, buying the stock is speculative at best. Some analysts are getting gutsy by forecasting that BP’s decline is about over, while most others are advising to stay far away from the stock.
