FT Alphaville » $47bn and counting

Good post today on BP in the FT.

We hold BP in a number of accounts, and continue to think that it will eventually recover. As the FT article notes, the market cap of BP has declined by $47 billion since the beginning of the crisis, which would seem to fully incorporate all legal liability and possible hits to operations.

That said, I am concerned that our view seems to be the consensus. Most of the Wall Street and UK analysts continue to have either a "buy" or "hold" on the stock, noting the cheap valuation and huge dividend yield (8%).

As the FT post also notes, the big risk to the company is that it is forced to cease operations in the Gulf of Mexico. This would be a big hit to the company:

...BP makes a third of its profits in the US and its Gulf of Mexico activities are the highest margin.

BP is obviously in the most vulnerable position of the parties involved – a net effect of the ongoing disaster besides financial liability could be the risk that no further GoM leases are awarded to them in the future and even a retroactive removal of the Macondo licence.

Which would leave BP dependent on its low growth downstream operations.

FT Alphaville » $47bn and counting