Buy BP now! Look at the exxon valdez oil spill. The judgement against XOM was $287 million dollars in actual damages and $5 billion in punitive(which was 1 year profit for exxon at the time). They didnt pay a penny of punitive and tied it up in court until 2006 when they got the punitive cut to $2.5 billion. By 2008 they fought more and got it cut down to $507.5 million. I believe they are still fighting and and trying to get it down to $25 million. XOM profit just for the 1st quarter of this year was $6.3 billion. More than enough to pay the original judgement in one swoop. Right now with the judgement at $507 million, it would take XOM about 1 weeks worth of profit to pay it off. BP will be no different. They will pay the cleanup costs which will be no more than a billion dollars and any massive punitive damages will be tied up for decades. BP is an easy double over the next year or two while collecting a nice 9% dividend.
I'm no Buffet, but even the value experts agree to disagree on methods. How much margin of safety is to be applied has to be balanced against reality. IMO, RIG is a better bet than BP here. I ran some conservative #'s and right now BP and RIG are both under book value. I got $47 for BP so if BP gets anywhere close to $25-30 it's a serious takeover candidate or it might even go private. Hence I really don't see it trading at $11-16 even with a dividend cut as BP's main problem is maintaining the dividend with the liability. FCF on BP isn't as high as one would think.
I am heavy buying BP, selling OTM front and back month puts (crazy high IV) and waiting it out for some news today. looking to see if the riser gets placed soon and if so expecting a price north of 40 either today or tomorrow. if it doesnt work the stock tanks again but it appears to me the downside is pretty small as the valuation by the market appears to be beyond a worst case.
Do you think a massive dividend cut is priced in yet? Moody's and Fitch ratings cut today: http://www.bloomberg.com/apps/news?pid=20601087&sid=anbtuCO3LYX0&pos=3 U.S. senators Ron Wyden of Oregon and Charles Schumer of New York said the company should suspend dividend payments until cleanup and liability costs are determined. A payout would be âunfathomableâ until the obligations are tallied, they said. The company paid $10.5 billion in dividends last year, according to its annual report. http://www.bloomberg.com/apps/news?pid=20601087&sid=akXEqg6_doxQ&pos=3
A big cut - at least 50% - has been priced in but no one knows if an elimination of the payout is fully priced.
Couldn't BP be a CH 11 candidate? The liabilities are potential huge... I'm staying away, except day trades...
I think its mostly priced in but for sure not totally. Plus a cut does not have to be binary all or none. even if they cut the dividend 30-50% the numbers still make a lot of sense for something beyond a day trade. I am mostly just selling puts because of that. I am "betting on" the rising being placed today or by tomorrow though. One thing is for sure with my trading is I could care less what a couple of Senators think about what should and should not be done with a dividend. Its not like they have the first clue to begin with and secondly its pretty obvious to me that they are just trying to get some press time and this was the method of the week. regardless its all a high risk trade and just like I said in the chat room I would not be long as much as I am based on the charts as they look awful and I even cut back some with smaller than wanted gains as a result. The news of the oil going up the Eastern coast sent the price back down below 38 but I am buying/fading the move down. very high risk