In some respects, [[BP]] is certainly doing well as it focuses on continued expansion and growth. There are several news stories suggesting instability in the company's future, however, and these will likely outweigh the more positive news items. As a result, I believe BP will be facing losses in the near future.
BP may be facing great legal complications in the near future as the government believes the company may have provided false information about the extent of the Deepwater Horizon oil spill from two years ago. BP's estimate of how much oil leaked is 20-50% lower than the estimates from the government. The company's engineers had refused to provide requested information, which has already led to legal action.
Future court cases may increase the fines already facing BP as a result of this oil spill. For example, if BP is found to have been negligent in this case, the fine will possibly change from $1,000 per gallon to $4,000 per gallon. This would be major due to the extent of the oil spill, and since the situation is currently so uncertain, it would be a poor time to invest in BP. Investors need to keep a close eye on how this plays out. Regardless, it will have a relatively immediate impact on the stock, as investors will grow worried by the possibility of this case leading to disaster. After all, such a great alteration would be equivalent to being fined for three more massive oil spills.
Aside from the growing concern over this legal situation, some are concerned about the partnership between BP and Alfa-Access-Renova. The CEO of their joint venture TNK-BP has recently resigned, and TNK-BP is still rebounding from several corporate governance issues. While this is mere speculation at the moment, the partnership does appear to be struggling. More internal struggles like these will only add to the doubts that stockholders already have as a result of the legal actions I have already discussed.
In better news for the company, it is once again set for exploration in Libya. The company had postponed its plans for exploration last February due to "civil unrest." Economic conditions are improving in Libya, so this is a good time for BP to establish itself there. The competing company Royal Dutch Shell (NYSE: RDS-A, RDS-B) is stopping some of its operations in the country. It has not been successful there, and its financial situation would not allow for continued exploration. BP's preparations for exploration in Libya, therefore, are a little risky. As the country is improving, however, this will likely benefit the company and have a positive impact the stock.
BP is also expanding by continuing to move forward on its Clair Ridge project. It has just signed a contract with Emerson Electric (NYSE:EMR), which is a company that will provide control and safety systems for two offshore oil platforms BP is developing. This will have a positive impact on Emerson Electric stock. For BP stock, I do not believe the impact will be very large. Production will not begin until around 2016. While this will help the stock in the longer term, it will have a very limited short-term effect.
BP's demonstration of its ability to grow and continue with its projects, however, will be attractive to potential investors. As a result, BP stock will probably see positive effects from this, even though these actions will not have very immediate impacts on the company. At the very least, this will help dampen the negative effects of the legal controversy.
Hess (NYSE:HES) has recently decided to sell its interest in a BP field to Royal Dutch Shell. The positive moves by BP show that this will not likely be harmful for either party. Hess needed to gain more capital, and Royal Dutch Shell is continuing to grow. If BP's situation continues getting worse, this may eventually come back to hurt Royal Dutch Shell. At the moment though, I think this will have little effect on either stock.
BP's major competitors are not doing much better, leading me to believe this is not a good time to invest in gas or oil stocks. Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are not doing well in the stock market as they address the issue of hydraulic fracturing. At Chevron's annual meeting, 150 protestors drew attention to the company's poor track record when it comes to environmental issues. WPX Energy (NYSE:WPX) and Rowan (NYSE:RDC) also face losses as a result of concern over Spain's debt and issues with the euro. As a drilling company, Rowan is also struggling to deal with the dropping gas prices. Oil and gas stocks face a wide range of issues, therefore, and as a whole, the industry does not look particularly strong.
One company that has been receiving bad news, however, is finally beginning to look better. Chesapeake Energy (NYSE:CHK) has struggled from a variety of stories giving the company a bad reputation, but many are beginning to view it as a profitable investment once again. For example, BlackRock (NYSE:BLK) has quadrupled its stake in Chesapeake, and analysts are beginning to consider it a buy. As everyone begins putting more faith in this company once again, it will likely recover in the market. The bad publicity facing many gas and oil companies, therefore, may only lead to temporary drops until the situations stabilize.
A large number of gas and oil companies are having difficulties due to either public image or financial issues. BP is potentially facing both these problems. Investors are growing more concerned over the company's legal problems related to the oil spill, and this may also lead to much heftier fines depending on how the court case plays out. Other competitors are in bad situations as well, but BP's situation is one that could lead to significant financial losses. While the bad publicity is only temporary, long-term investors should still watch closely as the court case continues to develop. At the moment, I would not recommend investing in BP, and current stockholders should prepare for least short-term losses.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.