BP: What Is Going On?

Aug. 4.10 | About: BP p.l.c. (BP)

By David Berman

Am I the only person who finds the commentary on BP PLC (NYSE:BP) a little puzzling? From what I can gather, the shares have been decimated on the well-grounded concern that the short-term and long-term costs of the massive oil spill in the Gulf of Mexico will hobble BP at best, and sink it at worst.

At the same time, there’s tremendous uncertainty over what the shares are worth because it is nearly impossible to predict what those total costs – which include clean-up efforts and litigation – will be.

Yet, this week, there appears to be a lot of focus on the stock’s reaction to reports that the latest solution to the oil spill (“static kill”) appears to be working – including an item in the Wall Street Journal pointing out that BP shares rose above $40 (U.S.) for the first time since May.

However, of all the concerns swirling around BP, the inability to eventually stanch the flow of oil wasn’t one of them. It’s good news, no doubt, but it doesn’t provide additional certainty on the costs of the oil spill.

Equally baffling: The significance of BP’s decision to replace its British chief executive with an American one. Replacing the CEO is good optics for the struggling company because the new executive will be relatively untainted by the poor decisions of the outgoing one.

But as for the importance of the new CEO's American accent in ensuring BP’s survival? Come on. It will take more than a drawl to send this stock higher.

What's more interesting is that BP shares have in fact been rebounding for more than a month, after hitting 14-year lows in late June -- proving again that the best time to invest is when the news is worst.

I took a look at Bloomberg News headlines from June 25, when BP shares fell below $27, and was reminded of just how grim that time was for the oil company. Not only was it trying to contain the oil spill (unsuccessfully) and its damaged reputation (unsuccessfully), but it was also facing the prospect of a tropical storm in the region.

"It's obviously not good news for BP," Bloomberg quoted Colin Morton at Resnburg Fund Management. "Who is going to buy the stock ahead of the potential hurricane."

Disclosure: None