Most of the news about BP (BP) still revolves around the Gulf of Mexico oil spill, and things are not looking particularly good for the company. The news about the spill mainly revolves around the federal investigation into whether or not BP lied about the estimates of how much oil actually leaked into the Gulf of Mexico two years ago. If the company did lie, this will have a serious impact on the stock. I feel that investors will have a hard time backing a company that is demonstrating dishonesty on such a large scale. The actual financial implication of the spill for the company and its stockholders is yet to be determined, but we can expect it to be huge.
There are ongoing investigations looking at whether or not the company's executives gave false information to Congress and whether or not engineers withheld information from the government. With regard to the engineers, the focus is on the discovery of several emails between engineers indicating that certain information about the spill should not be shared "outside the circle of trust." This does not come as a surprise after a BP engineer was arrested a little while ago for deliberately destroying evidence that the spill was worse than initially reported.
The estimate BP gave is between 20 and 50 percent less than what the government has reported. This could add to the already-substantial fine that the company has to pay. In addition, the company may be found to have been grossly negligent in the case, which would cause the fine to be increased even further.
Better news for stockholders is that BP will soon resume exploration activities in Libya. The operations were initially stalled due to the civil unrest in the area, but they should soon pick up once again. BP has withdrawn the force majeure, which "exempts both parties from any obligation to accomplish commitments like drilling due to an occurrence outside one's control." The restart is not yet definite, as it depends heavily on the security in the area. The company still needs to determine whether or not it will actually be safe to resume operations.
Although it is great that the company will soon be able to get back to exploring the area, it is not generally a good idea to set up activities in an area where there is such a large degree of civil unrest. Several other companies have actually pulled out of the area. Although many of these companies have since returned to their projects in the country, it is with reluctance that they do so. In addition, BP's operations in the area are only exploratory, and the company does not have any functioning projects in the region. I believe BP may be taking a less-than-necessary risk by returning to Libya. In addition to all this, we have no way of knowing what unrest may erupt in the country in the future. On the other hand, its exploratory activities could be highly successful and produce a huge source of revenue for the company. There are too many unknown variables for my liking, as the outcome of this action is too uncertain to predict with any confidence.
Competitor Chesapeake Energy (CHK) may soon be acquired by another company, although it is unclear as to which company will do this. Exxon Mobil (XOM), Chevron (CVX), and Royal Dutch Shell (RDS.A) are among the companies that may attempt to acquire Chesapeake. A combination of low natural gas prices-the type of gas that makes up the majority of Chesapeake's reserves-and the fallout from the actions of McClendon make Chesapeake a complicated, cheap company to acquire. Considering that a rebound in natural gas prices could occur at any time, this is a very sensible move on the part of any gas company at this point. As investors begin to speculate which company will actually acquire Chesapeake, all of these stocks may be positively affected by the growing anticipation.
In news for another competitor, Exxon stated that it has "no regrets" about natural gas. The company believes that natural gas prices will recover, meaning its reserves will not go to waste. To me, this makes Chesapeake a logical acquisition for Exxon. If the company is so confident that prices will soon increase, getting its hands on the reserves held by Chesapeake will make a substantial difference to the company's future in the long term. Of course, this is assuming the company is correct about the future of natural gas. Either way, it would reinforce the company's claim about its confidence and hopefully help to reassure investors of its future. These two news stories are combining to help Exxon portray a strong image of its company, and this will likely have positive effects on the stock.
Competitor Noble Energy (NBL) plans to sell a substantial portion of its North Sea assets to Maersk for the price of $127 million. This is an attempt by the company to rid itself of noncore assets. This will allow it to focus more intensively on those assets that make a substantial difference to the company's well being. The sale consists of "Noble's 30% non-operating working interest in its Dumbarton and Lochranza properties," but the company is in the process of considering selling of the rest of its assets in the North Sea area as well. I think this is a smart move for the company, and it shows consistency and dedication related to its attempts to remove noncore assets. As a result, I believe this will have a positive effect on the company.
Chevron recently came out of a lawsuit with Ecuador that was less than tidy, but the Ecuadorian government is now trying to sue the company in a Canadian court. It feels that Chevron cannot escape charges as easily in Canada as it can in Ecuador. Chevron maintains that the charges are fraudulent, and for the sake of Chevron stockholders, this will hopefully prove to be the case. It will certainly be interesting to see if the lawsuit is allowed to go forward and what the outcome will be. Regardless of the outcome, I think the bad press could negatively impact Chevron stock. This may only get worse if the case begins to lean in the favor of the Ecuadorian government.
BP is currently in a bad situation with the developing investigations, and I do not believe this is a good time to invest in the company. Competitors like Exxon and Noble are in a better position for gains, and I would recommend these if one is looking to invest in the industry. I think potential investors should wait out the investigation and see how everything turns out. Even the plans to explore in Libya are risky, so this is an uncertain time for BP. At the time being though, I feel fairly confident that the stock will continue falling as the investigations continue.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.