Another day, another volley from the federal government lobbed at
BP (NYSE: BP). This time, though, the survival of the company may now actually be in question.
Today's news has the Interior Secretary "encouraging" BP to pay the salaries of oil workers laid off because of the government's decision to impose a six-month moratorium on offshore drilling and completion activities. I have no idea how much money this will ultimately be, nor how many people the government will try to shove under BP's umbrella, but it feels safe to assume that it will be quite a bit of money.
Am I the only one here who thinks this smacks of what you hear about in the third world, where governments charge the families of political prisoners for the costs of their incarcerations and/or executions?
In any case, this comes on top of the already $1.3B+ in likely economic damages that BP will have to pay, to say nothing of billions more that the U.S. government is going to attempt to levy in civil and criminal penalties. On top of *that*, figure on even more lawsuits (class action and otherwise) to come from people who incurred real damages from this spill and those who simply see a chance to chase a fat, juicy ambulance.
Right now speculation is starting to swirl about whether or not BP will have to seek bankruptcy protection. As of the end of 2009, BP had about $101B in positive book value, about $37 billion in debt, and about $8 billion in cold hard cash.
I think bankruptcy is probably a stretch at this point. That $8 billion in cash does not include any ongoing positive free cash flow (which could easily be $7 billion or more per year), so unless the government drastically overplays its hand, I just don't see the company coming to such dire financial straits that bankruptcy is financially necessary. Remember, it will take up to a decade for all of this to get resolved and BP won't be writing big checks for some time to come.
What could happen, though, is a strategic bankruptcy for the U.S. subsidiary of BP. I truly have no idea how that would impact the legal wranglings that are going to involve BP for a decade to come. I would suspect that a bankruptcy of the U.S. subsidiary would be a large middle finger extended towards Washington, D.C. and would complicate efforts to get payments from BP above and beyond any assets residing in the U.S. subsidiary. On top of all that, I have to wonder if this is going to become a diplomatic issue at some point; I cannot imagine that the U.S. government would let a foreign government push
ExxonMobil (NYSE: XOM) or
Chevron (NYSE: CVX) to the point of bankruptcy, so I have to think that the British government gets involved before too long.
Along similar lines, the ongoing trouble for BP looks increasing bad for
Anadarko (NYSE: APC) (BP's partner),
Halliburton (NYSE: HAL), and
Transocean (NYSE: RIG). The worse this situation gets, the more incentive BP has to spread the economic damage. Though I still think Transocean (and
Cameron (NYSE: CAM) walk away from this in good shape, Halliburton and Anadarko could have something to worry about.
On top of that, the knock-on effects to offshore players like
Apache (NYSE: APA),
Cal-Dive (NYSE: DVR) shouldn't be ignored, as the cost of doing business off the coast of U.S. (and maybe even the opportunity to do so at all) is definitely now in question.
Here's hoping that U.S. government sees reason and doesn't push their luck too far with BP. Like it or not, the U.S. oil industry is a significant part of our energy infrastructure, and the oil industry is a major source of jobs and state tax revenue in places like Texas and Louisiana. Seek justice by all means, but when it teeters over into populist vengeance and confiscatory retribution, the government may just find that it has made us all poorer in the long run.
Bottom line - I'd still be interested in stocks like Apache, Transocean, and Cameron. I still think BP survives this and works long-term as a stock, but you really have to have a strong stomach to step up today.
