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The daily cost of operations, clean-up and restitution to BP plc (BP) has reached $100 million per day (over the last three days), according to the company. Unless this is being broadcast to garner unlikely sympathy from a angry crowd, then the costs have reached a magnitude I would have thought unlikely, and my contrarian bet on BP may be at risk.
It's important for me to disclose from the beginning (not just in the footer) that I have wagered that BP is oversold through options and equity. How much so depends on a lot of factors. I made this calculated risk based on the assumption that forcing the company into bankruptcy is not in anyone's best interest. However, I am once again reminded of a great line from the The Maltese Falcon, in which Kasper Gutman cautions Sam Spade:
"That's an attitude, sir, that calls for the most delicate judgment on both sides. 'Cause as you know, sir, in the heat of action men are likely to forget where their best interests lie and let their emotions carry them away."
No commentary was ever more true. This happens on every basketball court in the world and may soon happen on a grander scale if we are so short-sighted that we push BP over the edge.
If our fearless leaders and the raging protesters egging them on do not recognize that the clean-up efforts paid for by BP will be hampered, halted or marginalized if they are forced to take the drastic step of declaring bankruptcy, then we truly have forgotten where our best interests lie. The issues are laid out in BP Bankruptcy in UK Is Obama's Worst Nightmare, by Caroline Baum in BusinessWeek, and it seems very clear this would be bad for everyone, except competing oil companies and vulture funds picking at the bones.
If BP were to be acquired by another company, that company would most assuredly require a cap on potential losses. Otherwise, why would it step into this mess. It's also possible that BP could declare bankruptcy and allow itself to be acquired cheap on the auction block, if no rational approach to its continued survival and payments are reached.
To me this resembles an upside-down real estate transaction, in which the borrower has lost all equity but is willing to struggle along if the lender is willing to restructure or extend the loan. This is happening all over the country today: the borrower and lender recognize that for better or worse they are partners in a deal gone bad.
It is in everyone's best interest to allow BP to survive and prosper, albeit under new rules, so that it can pay for the damage it has caused. If this is not done, then we are truly foolish.
BP opened up Monday morning at $27.62, down from a 52-week high of $62.38.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: He own shares and options of BP.
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Reader Comments (Page 1 of 1)
6-28-2010 @ 1:02PM
thedude said...
BP made $48 million per day in profit last quarter.
Assuming their global revenue stream hasn't been too heavily impacted then the spill is really only costing them $52 million per day. There will probably be a few weeks of very expensive clean up and then a few weeks of less expensive activities. It will cycle as oil continues to make landfall.
BP execs are probably hoping for a major hurricane to pick up the oil and spread it over a few hundred thousand square miles. It's easier to clean up a hundred million little spills than one big one. Then they can just disrtibute Home Clean Up Kits to everyone. Bags of cat litter and Sham Wows.
The question is whether BP execs would choose to go the bankruptcy route. or even be allowed to, when the company is still potentially healthy.