Even Oil Slick’s have Bright Sides

Since the oil mishap in the Gulf of Mexico, BP stock has plunged from USD630.00 to around USD570.00. Investors are now wondering what to do with the London-based energy giant. Should they sell and salvage what they can? Or is it a perfect time to buy in?
There’s a lot of variables at this point, including whether engineers will successfully cap the well, how much environmental damage this debacle’s going to cause and what kind of lawsuits BP’s facing. Everything’s still a veritable mess and it’s too soon to know exactly what kind of hits BP’s market cap is going to take.
However, looking at stock performance in previous oil disasters does give you some perspective. The most expensive oil spill in history was the Exxon Valdez tanker in 1989. The tab for cleaning up one of the most devastating human-caused environmental disasters in history ran to about $7 billion. While liberal estimates put the cost of cleaning up the Gulf of Mexico at around $15 billion, BP has already had double that that wiped off its market value. And while the energy company doesn’t have insurance for spills, BP won’t be on the hook by itself. Transocean, Halliburton and Cameron International all had roles in the accident and are all liable.
BP also has ample liquidity and a strong balance sheet to handle a crisis of this magnitude. According to FactSet data, the energy company has $70 billion in current assets, including cash, receivables and inventory, to set against $62 billion in short-term liabilities and $24 billion in long-term debt. Income last year was $21 billion on sales of $241 billion.
Big, media frenzy disasters tend to make for exaggerated stock movements that don’t necessarily reflect balance sheets. Given BP’s figures, shares look like a deal no matter kind of cleanup bill they flip. And the irony is, if the Gulf spill leads to higher global oil prices, that’ll benefit BP’s stock as well.