Shares of BP plc took a roller coaster ride last week while the estimate of the amount of oil its leaking Macondo well has spewed into the Gulf of Mexico (GOM) was on the ascent.
BP shares ended the week on an up note Friday, closing at $33.97 on the New York Stock Exchange, up 3.63% from Thursday's close. While rumors of a dividend suspension swirled earlier last week, BP stock took a beating on Wednesday, closing down nearly 16% at $29.20. The stock rebounded Thursday as investors who had pushed the panic button heeded cooler analytical heads and drove the price up more than 12% at the close from the 14-year low recorded Wednesday.
Politicians in Washington have called for BP to suspend its dividend while the meter is still running on costs for its catastrophic Macondo well blowout in the Gulf of Mexico. Some went further than Washington in excoriating BP.
Matt Simmons, principal of Houston-based boutique energy investment bank Simmons & Co., told Fortune magazine that the U.S. government should ask BP to leave the United States and that it should put the U.S. Navy in charge of the spill. "Because as long as it's in BP's hands, they're going to spin the information as long as they can."
Simmons predicted bankruptcy for BP.
"They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses," Simmons told the magazine. "One really smart thing that [President] Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this, my guess is that they'll panic and go into Chapter 11."
But Simmons' was the minority view on the company, at least among the energy and finance communities.
"We continue to argue that BP is worth more alive than dead," analysts at Tudor, Pickering, Holt & Co. Securities Inc. said, blaming the "poisonous Washington atmosphere" that has gone over the top since the catastrophe.
There is no liquidity crisis, the analysts said, pointing to BP's $6.8 billion in cash and the fact that it generated $3.5 billion in cash in the first quarter before dividends. This is not an Enron situation. Both BP and Anadarko Petroleum, a 25% owner of the disastrous well, have hard assets and cash. Anadarko stock shares also rose more than 12% Thursday, coming off a steep decline Wednesday.
It is possible that continued pressures from Washington, combined with stock and debt market pressures, could eventually drive the companies over the brink, but those doing the pushing should consider that "BP in the hands of creditors and/or government seems to be a political nightmare that could/would cost a lot of incumbent politicians their job in the next elections," the Tudor Pickering Holt analysts warned.
Beyond that, taking down the two companies could drive other companies out of deepwater drilling for the foreseeable future, if it hasn't already, as insurance to cover the wipe-out of a company is not likely to be available. "So it seems like the U.S. government would find itself in the position as the source of insurance/risk...or face the eventual drop in deepwater oil production of over 1 million barrels a day," the analysts said. Loss of deepwater Gulf oil would directly weigh on U.S. energy security, the U.S. Treasury and the economy and jobs in the Gulf region.
New, higher figures on the amount of oil flowing released last week indicate that anywhere from 40 million to more than 100 million gallons of oil have fouled the GOM since the well blowout on April 20.
Last week BP was continuing preparations for enhancements to the LMRP cap system, which has been the first of its contraptions to succeed at collection some of the oil spewing into the GOM.
The first planned addition will use the hoses and manifold that were deployed for the unsuccessful "top kill" operation to take oil and gas from the failed Deepwater Horizon blowout preventer (BOP) through a separate riser to the Q4000 vessel on the surface, in addition to the LMRP cap system. This system is intended to increase the overall efficiency of the containment operation by possibly increasing the amount of oil and gas that can be captured from the well. It is currently expected to be available for deployment in mid-June.
The second planned addition is intended to provide a more permanent LMRP containment cap system by directing the oil and gas to a new free-floating riser ending approximately 300 feet below sea level. A flexible hose then will be attached to a containment vessel. This long-term containment option is designed to permit more effective disconnection and reconnection of the riser to provide the greatest flexibility for operations during a hurricane and is expected to be implemented in early July.
In the meantime, work continues on the first relief well, which started May 2, and the second, which started May 16. Both wells are still estimated to take approximately three months to complete from commencement of drilling.
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