BP Shares Surge After $20B Oil Spill Fund Deal

[depakid]

Source: Wall Street Journal

Shares in U.K.-listed oil giant BP PLC (BP) jumped as much as 9.8% in London Thursday after the company struck a deal with the Obama administration a day earlier to set aside $20 billion to cover Gulf of Mexico oil spill costs by slashing spending. Several analysts upgraded the embattled company to a "buy" recommendation, despite BP's promise to cancel at least $7.8 billion in dividends, sell off $10 billion in assets and reduce capital expenditure by at least $4 billion as it looks to build up the $20 billion fund over the next 3 1/2 years. The fund will not cover civil or criminal penalties.

"BP's package agreed with President Obama should cool the political heat and provide some degree of comfort to equity and bond markets, shareholders," said Evolution Securities analyst Richard Griffith. BP struck the agreement with U.S. President Barack Obama, whose fierce criticism of the company has played a big part in a steep collapse in its share price recently. BP Chief Financial Officer Byron Grote said the deal gives his embattled company a more constructive "partnership" with the Obama administration.

"This process may be seen as a necessity if BP is to have a long term future in the U.S., and it should give BP a starting base for re-establishing its relationships with key U.S. administrators," said Collins Stewart analyst Gordon Gray. Aside from the political aspects, the only advantage of the deal for BP was the scheduling of payments to the $20 billion fund over more than three years, "which avoids an emergency call on debt," said NCB Stockbrokers analyst Peter Hutton.

BP will pay $3 billion into an escrow account in the third quarter of this year and another $2 billion in the fourth quarter. This will be followed by payments of $1.25 billion per quarter until the $20 billion has been fully paid.

Read more: http://online.wsj.com/article/BT-CO-20100617-705201.html?mod=WSJ_World_MIDDLEHeadlinesEurope

[Child_Of_Isis]

1. Another too big too fail.

They have us where they want us. If they fail, the taxpayer gets stuck with the tab of cleaning this mess up. No wonder Tony Hayward was smirking when he came out.

Corporate anarchy & rule.

This is about as bad as people in the Gulf having to go to BP for jobs in order to pay their bills now.

[dipsydoodle]

2. If they literally fell

it would impact both your economy and your job market. Could also lead to Petrochina becoming the Pentagon's main oil supplier - they'd just love that.

[Romulox]

4. So we need to let a British company destroy the environment--what, do you want RED CHINA to do it?

Now we're reading the torygraph dot com.

[dipsydoodle]

5. It is not a British company

It is simply registered here. It has been a global, mainly Anglo American , company for about 10 years. You really are behind the times.

[Romulox]

12. Its legal liability flows from where it conducts its business, not who its shareholders are.

That's where your confusion originates. (And yes, the play on words was very much intended! :hi:)

All that said, I am certain that your posts (and similar threads running through Britain's rightwing tabloids) is based on the fact that you know damn well which of our two countries will suffer the most for BP's sins. That's why they call it "investing"; you must bear the risk of loss and well as of gain. :hi: :hi:

[dipsydoodle]

18. Lets just agree

to differ. :)

:hi:

[Romulox]

25. I don't agree to that. I called you out on your nonsense, and you retreated.

:hi:

[LanternWaste]

24. I imagine there are more possibilities...

I imagine there are more possibilities than your either-or premise allows...

[Romulox]

29. What a surprise to see you leap to the defense of a multinational corporate malefactor!

And, further, what a surprise that, in your haste to jump to the defense of the aforementioned malefactor, you missed what was a BLINDINGLY obvious lampoon of the post to which I responded. :hi:

[wackywaggin]

15. Watch the price at the pump rise and see who is really paying!!

BP will never pay a penny of money, they will contribute. My prediction is we will see a number of sharp rises and falls in fuel prices To fund this BP "fund" to fool the people of America into believing BP is actually paying for their crimes when in actuality we are going to be paying more for fuel and slowly being "bled out".

Heretic Wack

[Titanothere]

28. So don't fill up at a BP station

You'd have to have the entire industry in collusion for the prices to jump for everyone.

[Romulox]

3. Well, BP has had its private meeting with Obama--he obviously promised to protect them

just like he did at his bankster meetings--taxpayer bailouts followed these, not penalties of any kind. :hi:

[Child_Of_Isis]

11. Did he have a choice?

We are over a barrell with both the economy & the environment in the Gulf.

It reminds me of an abused woman who returns to her abuser because she lacks the confidences & resources to survive on her own. Yet it was the abuser who took these things from her.

[Romulox]

13. Anytime he's had a choice to make, the President has sided with big business over people.

:shrug:

[BrentWil]

6. BP Shares Rise After Deal on Fund

Source: NY Times

LONDON — Shares in BP made up part of their recent losses Thursday as investors welcomed a deal struck with President Obama to set up a compensation fund for the victims of the oil spill in the Gulf of Mexico.

The shares gained as much as 9.7 percent in early London trading. They had fallen 45 percent since an oil rig exploded in April.

Some investors said the agreement with the United States eliminates some of the uncertainty about the costs for the oil spill cleanup and compensation, even though BP scrapped dividend payments as part of the deal.

“It’s a positive because there were no surprises in the deal, the dividend had been well communicated beforehand and at least in the near-term the agreement gives investors a little bit more certainty and something to work with,” said Keith Bowman, an analyst at the asset manager Hargreaves Lansdown in England.

Read more: http://www.nytimes.com/2010/06/18/business/global/18bp.html?hp

[Statistical]

7. Paying $20B over 3.5 years is good news for investors.

It will create a nice orderly claims flow and provide a "speed limit" on how fast money flows out of the company.
Unlimited claims can be submitted but the claims will only be paid when there is money in the fund. More claims than money sorry you need to wait till next qtr.

The govt just gave BP a method on exactly how fast they will need to pay claims. No investors expects BP to get away for free but a managed flow of money is good news. BP is estimated to make $30B in 2011 and will only contribute $5B into the fund during the same time period.

I tried pointing this out yesterday but got smacked down as anti-Obama.

[BrentWil]

8. I don't think BP is finished, as many were saying here NT

[Bragi]

9. I fear you are correct

I had thought that the $20 billion fund was just an inconcequential shell game that allowed Obama to look tough while doing precious little. I presumed yesterday's up-tick in stock price reflected the fact that the market was relieved that BP got off so easily.

Your theory that the dreaded escrow account (Oh no, he's packin' an escrow account!) actually makes it easier for BP to control the outflow of compensation cash seems quite plausible to me, and would explain yesterday's stock price increase.

[Statistical]

10. I mean I don't want to make it seem like rainbows and skittles.

$20B is a lot of money and BP will pay a lot more. Estimates are looking like $40B - $60B if relief wells stop the flow in 100 days. That is a real chunk of money however the market already KNEW BP was going to pay money and a LOT of money that is why the stock declined 50%.

So anything that makes the outflow controlled (and with government approval) is a big plus. BP is a cash generating machine. Tthe oil industry isn't particularly innovative, they find oil, extract it, sell it, and pocket the $$$. The mean estimate for BP free cashflow next year is $30B. So over a long enough timeline (10 years = $300B, 20 years = $600B actually more because profits rise as oil rises) they certainly have the ability to pay. Philip Morris has paid out similar amounts of money and is still hugely profitable. The real risk was a "cashflow crunch". They can't pay $60B in a month. Having to come up with $20B at once would require selling some assets (likely to competitors = double hit).

The setup of the escrow fund makes that outflow orderly. I guarantee you that claims will stop being paid in about a month because the fund has run out of the first $3B "chunk". BP will say. Sorry our agreement is next $2B won't come till Q4. By that time there will be more than $2B in claims waiting. Rinse and repeat for 3 years.

[depakid]

20. Just getting rid of the uncertainty would have helped the stock- though I agree

and missed your post yesterday. Sad that things often get dumbed down to the lowest common denominator lately.

[galileoreloaded]

14. No one here seriously thought BP was going under.

I mean, it's fun to hope, but I have faith that most here can wake up in the morning and see how the world works.

If you did believe they would tank, there is a term for that, cognitive dissonance.

Or maybe it's Panglossian Disorder, who knows. Google it.

Companies tank because they are poorly run or can't react quick enough to changes. Not at all the case here as w/ GM.

[alfredo]

16. Look at all the people who have jobs at BP stations. If BP

went under, those workers would be on the street. Cities would lose business and property taxes, and states would lose sales and gas taxes.

BP's stocks went up because the market hates the unknown. Now that a deal has been cut, the market has some idea what to expect.

Everyone who had anything to do with the criminality should be in shackles. New leadership should be brought in and held to a very high standard. They should also pay and pay until the gulf is renewed.


Remember, the 20 billion is the floor, not the cap.

[Statistical]

17. Technically the $20B is neither a floor nor a cap.

However $20B fund means BP gets to control how fast they pay claims. They control this indirectly by the rate they put money into the fund.

Thus investors know BP isn't going to get hit with demand for $20B in cash tomorrow. That would require selling core assets to competitors and damage the company long term.

While the $20B is neither a floor nor a cap it is a method to control the "speed" of capital outflows.

[dipsydoodle]

19. I don't think this

has anything to do with the outcome of court cases and fines whatever and is more day to day stuff. As such the fund will probably always have sufficient at any point in time to pay claims on a running basis at the discretion of the appointed independant admistrator.

[Statistical]

21. BP has indicated they will pay all court cases out of this fund.

Since court cases carry some legal weight likely they will simply "move to the front of the line".

The fund will be available to satisfy legitimate claims including natural resource damages and state and local response costs. Fines and penalties will be excluded from the fund and paid separately. Payments from the fund will be made as they are adjudicated, whether by the Independent Claims Facility (ICF) referred to below, or by a court, or as agreed by BP.

http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7062966

Simply put it creates a "money speed limit". Investors now know the rate (if not total amount) that the spill will cost them.

The only thing the fund won't be used for it BP cleanup/mitigation costs and any fines. Likely the govt will stretch out time horizon for fine repayment to ensure individuals are paid first.

[Romulox]

30. BP has neither the right nor the power to put conditions on its liability.

They can say they are going to pay out of their mother's pocket-book. Their desire to pay out claims only out of a discreet fund would only be an operative fact in a settlement negotiation. Think this through; one cannot enter into a unilateral "settlement" with people one has injured by setting up an escrow fund.

Simply put it creates a "money speed limit".

No, you're simply mistaken. Legal liability simply does not work like that.

[galileoreloaded]

31. You assume a fair and level playing field. n/t

[Statistical]

32. Tell that to Exxon victims.

It is more like "You agree to be paid from the fund ...... or we tie this up in appeal for next 18 years."

If you don't think they won't do that then you are naive.

"No, you're simply mistaken. Legal liability simply does not work like that."
:rofl:

What is this Mr. Smith goes to Washington? Really.
Corporations never play hard ball, use the law to their own advantage, force victims to accept less than full compensation (out of fear of losing or getting less in court)?

They have been playing that game (and racking up the score) for last 30+ years. The idea that BP is just going to roll over be nice, and hand over unlimited amounts of money is not based reality.

[Romulox]

34. Right. All claims are subject to dilatory appeals. That doesn't mean that BP can dictate

the terms of its liability.

"You agree to be paid from the fund ...... or we tie this up in appeal for next 18 years.

I assume this is meant to be hyperbolic, but it won't be possible to "tie this up" for 18 years. :hi:

[Statistical]

35. "but it won't be possible to "tie this up" for 18 years"

Sure.

Exxon, Tobacco.... shit man there are still ASBESTOS claims today.

Plus BP doesn't have to tie it up for 18 years they simply need to scare the victim into thinking they MIGHT be able to.
The guy who has missed 4 payments on his boat, and in risk of foreclosure, on food stamps, and need money now is very unlikely to say "no fuck that Romulox promised it won't get tied up for 18 years". No he will say "where do I sign" and get paid from the fund.

Come on man. This is the real world.

Once again you assume that money isn't power and that the good guy will win because that is how it happens on TV.

[Romulox]

36. There are still asbestos claims today because litigants are still coming forward.

It's unfortunate, but a formatting error with the quote function caused a section of my previous post dealing with the Federal Class Action to be omitted. The class action was designed to address the power imbalance between individuals and corporate tortfeasors under just these sorts of facts.

It is also worthwhile to point out that the tobacco settlement precluded individual lawsuit in lieu of monies that the States have largely directed to things other than smoking cessation or healthcare. To this day, it's hard for me to understand how this arrangement does not violate my rights to due process under the US Constitution, but set that to the side for a moment. Do you reckon BP will get a deal whereby it gets to continue pollute the Gulf in perpetuity in return for money for the General Funds of the various States?

Because I don't! :hi:

[alfredo]

22. You can't get eggs from a hen in the pot.

[Statistical]

23. True. I just think BP could "contribute" more than $5B per year into the fund.

The again something is better than nothing. For those with a claim it makes the process more orderly. Likely they will know where they are in the process, and when they can expect payment.

[alfredo]

26. Congress was only asking for a $10 billion cap.

[truedelphi]

33. I am not being snarky - I am completely uninformed abt what the

20 Billion annually means.

You sound knowledgeable about the matter.

So here's several questions -

1) Is it in writng? Can BP slither out/away from this agreement?

2) Who would be covered? BP is so snaky about everything - I have seeen several interviews of people who were on the Deep Horizon Rig as it was exploding, and they are worried that since thay were basically forced to sign agreements with BP that they were medically sound before BP would let them go home, I don't trust them. I heard someone from BP say they would honor all "legitimate" claims, but since they diss the oil cleanup workers for getting sick, who's to hold their feet to the fire if they don't honor claims?

3) Will economic injury count? I really want to see that those whose livelihoods are being destroyed will be able to hit BP with damages for that.

[pitohui]

27. markets like certainty

the deal's a win/win, it helps the gulf coast now and in the future, and it gives the market some kind of real world number to work with, rather than hysteria and fear