BP Plc (BP) is an integrated oil and gas exploration company. BP's headquarters are in London, United Kingdom. The company has a market cap of $139.1 billion, and its stock price is currently trading at around $44.
BP's overall business, as well as its stock price, has been in a downward spiral. In the second quarter, BP announced that it had lost $1.38 billion. The loss can be partially attributed to BP's selling of assets, and it is one of the reasons that BP's stock price has declined by 10% since March. I believe that the primary reason that investors have shied away from BP's stock is fear over its January 2013 liability trial. It is understandable that the trial, which will determine BP's liability in regards to the 2010 Macondo oil field disaster, would make investors nervous about the stock. What is at issue in the trial is whether or not BP was grossly negligent in their management of the Deepwater Horizon oil rig. While the Federal Government alleges that BP was grossly negligent, BP says that it is willing to settle on "fair and reasonable terms." If BP is found guilty of gross negligence, its liability damages under the Clean Water Act could nearly quadruple. BP and the U.S. Government are currently negotiating to settle civil and criminal liability penalties, and for now, neither side is willing to comment on the status of the negotiations. These legal proceedings could profoundly affect BP's future because, "According to unconfirmed reports, the DOJ is seeking a $25 billion settlement from BP, in an agreement which would settle all civil and criminal charges."
Recent news that could affect BP
On September 13th, Ben Bernanke announced that the Federal Reserve would be initiating its third quantitative easing (QE3). Oil prices have been on the rise partly in anticipation of QE3. Oil prices are at multi-month highs, and since the week ending on June 22nd, oil prices on the New York Mercantile Exchange have risen from $79.76 per barrel to $99.00 per barrel. It is expected that QE3 will lower the value of the U.S. dollar and push investors to put money into commodities such as oil. Since the QE3 announcement, oil stocks have risen slightly. For instance, BP's stock is up 3%, Marathon Oil Corporation's (MRO) stock is up 7%, Exxon Mobil's (XOM) stock is up 3% and ConocoPhillips (COP) stock price is also up by 3%.
On September 13th, BP announced that it has "agreed to sell its 18.36 % non-operated interest in the Dragon field in the Norwegian Sea to AS Norske Shell for $240 million in cash." The agreement is an example of how BP is focusing its North Sea portfolio towards high-value assets with long-term growth potential. BP representatives further stated that BP was in the "final stages of completing two major projects in Norway, the Scar field and the re-development of the Valhalla field. The two projects will help BP to more than double its Norwegian production to more than 60,000 barrels of oil equivalent a day."
On September 12th, TNK-BP, the Russian crude oil producer that is 50% owned by BP, announced that it is holding talks on "selling its Lenik oil refinery in Ukraine, after struggling to keep the plant profitable in the face of cheap fuel imports. The Ukrainian operations had a net loss of $68 million in 2010 and $23 million last year."
On September 9th, BP announced, that it is in talks to sell some of its Gulf of Mexico oil fields to Plains Exploration & Production Co. for roughly $7 billion. BP has made no secret that it is trying to raise money to pay for damages from the 2010 Macondo oil field disaster.
On September 4th, shares of BP fell 4% when news got out about the government's August 31st court filing. The Federal Government is taking a hardball approach towards BP. In the filing, Government lawyers wrote, "The behavior, words, and actions of these BP executives would not be tolerated in a middling-size company manufacturing dry goods for sale in a suburban mall."
On August 21st, BP said it was recalling a 50,000-barrel batch of regular gasoline that was sold at northwest Indiana retail stations last week after it discovered high levels of residue in the fuel that caused mechanical problems in vehicles.
Now that the details of the Department of Justice's August 31st court filing have been released, there can be little doubt about the seriousness of the BP versus U.S. Government settlement talks. If no settlement can be reached, BP is at risk of being assessed $25 billion in a liability judgment. This is the biggest news in BP's future, and it is sure to thwart any advancement in BP's stock price. The fact that BP executives are raising cash to cover settlement cost shows that they are preparing for bad news. BP has already agreed to pay $7.8 billion for claims from private plaintiffs, and has put aside $37.2 billion to cover legal claims and clean-up cost. Unfortunately, for BP a $25 million judgment would be devastating. If BP can hammer out a favorable legal settlement, the stock price will spike higher. But, it is almost certain that BP's stock price will not move higher if there is no settlement prior to the trial. If there is a trial, it is anybody's guess about the outcome, and many investors are unwilling to take that kind of a risk.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.