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BP Questions, Rumors and Predictions

|Includes: BP p.l.c. (BP), RDS.A, TOT, XOM
For weeks now, questions, rumors, speculation and predictions have been swirling about BP. The world’s 4th largest company has seemingly made misstep after misstep since the April 20th explosion on the Deepwater Horizon rig in the Gulf of Mexico.
It has now been 52 days since the explosion and there still remains two key unanswered questions.
1. When will BP be able to stop the oil well from spewing thousands of barrels of oil into the Gulf of Mexico each day?
2. How much will BP have to pay as a result of this disaster?
The longer these two key questions have remained unanswered, it has led to additional questions and speculation over the future of BP.
1. Will BP be forced to cut or suspend their dividend?
2. Will the mounting cost of oil spill force to file for bankruptcy?
3. Will the U.S. restrict BP from operating in the U.S.?
4. Will another company (possibly Exxon Mobil, Total or Royal Dutch Shell) acquire BP?
Tensions between the U.S. government and BP have been deteriorating rapidly. Recently, President Obama stated that if BP CEO Tony Hayward worked for him, he would be fired over the handling of this disaster.
The clamoring for BP to cut its dividend payment has also been increasing. This week over 40 lawmakers asked BP to suspend their dividend payment and to cease advertising campaigns until the cost of this massive oil spill is known.
These questions along with speculation over whether BP will even survive as a company have resulted in BP’s stock price falling nearly 50% since April 20.
We at have our own BP predictions:
Dividend Cut
BP will be forced to cave to political pressure and temporarily suspend their dividend payments. The company certainly has a strong enough balance sheet to continue to fund their dividend program, but the political risk of continuing the dividend program doesn’t make it worthwhile. BP’s chief concern has to be maintaining their U.S. presence and possibly even maintaining their government contracts.
BP will not be forced to file for bankruptcy. BP has nearly $7 billion in cash currently sitting on their balance sheet and the ability to take on significantly more debt if needed. The company is also a cash flow machine – generating $30 billion last year in operating cash flow. This solid financial position will enable BP to handle even the high-end of cleanup cost estimates.
While BP’s falling stock price may remind investors of Lehman Brothers or Bear Stearns, BP is unlikely to be acquired for pennies on the dollar like those former Wall Street firms. BP continues to generate tremendous cash flow and there are only a handful of companies that could even consider making such an acquisition.
U.S. Operations
In 2009, 36% of BP’s revenues came from the United States. President Obama and U.S. lawmakers could take steps to serious restrict BP from conducting business in this country. However, the detrimental impact to the domestic economy makes this an unlikely option. However, the federal government will use this as a threat to coerce BP into cutting its dividend payments and to pay all the cleanup bills.

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