The Great Oil Spill Sell-Off

As each day passes, the headlines surrounding BP's (NYSE: BP  ) oil spill in the Gulf of Mexico keep getting worse.

Yesterday, we learned that the leak from the bottom of the Macondo exploration well is five times more severe than initially thought. Louisiana declared a state of emergency, and the Air Force and the Navy are now helping the Coast Guard try to contain a spill that could surpass Exxon Valdez to become the worst in U.S. history.

BP, along with contractors Halliburton (NYSE: HAL  ) and equipment maker Cameron (NYSE: CAM  ) , has been served with at least one lawsuit already. Transocean (NYSE: RIG  ) , whose Deepwater Horizon rig caught fire and sank to the ocean floor, could bring its share of litigation risk as well. All of these stocks have been battered since the accident was first announced, with Transocean hit particularly hard.

Some analysts are arguing that the sell-off in BP shares is overdone. Because it's one of the biggest oil companies in the world, a double-digit percentage decline obviously translates to a gigantic loss of market value. Bernstein Research estimates that BP could be on the hook for up to $8 billion in costs, but the company's equity has lost roughly three times that amount in market value.

That BP is oversold is probably a good bet. An even better bet, I think, is that companies that had nothing to do with the spill are also selling at a senseless discount. Here are three ideas:

Dril-Quip (NYSE: DRQ  ) is a manufacturer of offshore drilling and production equipment like wellheads and riser systems. The stock was down 9% at one point today. You'd think it had provided the blowout preventer that failed to engage, not Cameron.

ATP Oil & Gas (Nasdaq: ATPG  ) is an offshore exploration and production company that recently began production from a new deepwater field in the Gulf of Mexico. Two weeks ago, I said the shares were no longer in best buy territory -- but they're headed in that direction.

Finally, Cobalt International Energy (NYSE: CIE  ) is an offshore explorer that I've had my eye on since its unheralded IPO last fall. I've given a ballpark figure of the shares' value in the $19 to $23 range, so today's price has me quite interested. I should note that partner Anadarko Petroleum has had mechanical difficulties drilling out the Heidelberg structure, and that could justifiably knock a little off the share price. This isn't commensurate with the beating the stock has taken, though.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 30, 2010, at 3:18 PM, baldheadeddork wrote:

    Buy on the rumor, sell on the news: President Obama shelves new offshore oil drilling until safety and spill safeguards are reviewed.

    http://www.msnbc.msn.com/id/36865687/ns/us_news-environment/

  • Report this Comment On April 30, 2010, at 3:58 PM, XMFSmashy wrote:

    This issue has not been reported clearly, but by my read of the Administration's comments is that they are not going to open up the new offshore areas they have been talking about (Eastern GoM, Atlantic Coast, etc.) until this safety issue is studied and remedied. Current drill permits are unaffected so far.

    TS

  • Report this Comment On April 30, 2010, at 4:22 PM, AirForceFool wrote:

    Welp, call me crazy, but I just moved my entire 434% gain in NFLX into ATPG... I sold NFLX based on valuation... I really love the company, but feel that we'll see cheaper shares in the not to distant future... I was hesitatant to place all of my gains into ATPG, but with the recent selloff, and Telemark up and running, I think in a year I'll be quite content with my decision... time will of course tell...

    Chris

  • Report this Comment On April 30, 2010, at 10:05 PM, XMFSmashy wrote:

    Congrats on NFLX, Chris, and good luck w/ the new investment. I hope to see you on the ATPG board.

    TS

  • Report this Comment On April 30, 2010, at 10:36 PM, allsteamedup wrote:

    Before Mr. Shute starts throwing darts at Cameron, he should learn the sequence of events that led to the blow-out.

  • Report this Comment On May 01, 2010, at 11:29 PM, Clint35 wrote:

    I don't get why shares of BP are down. They'll be just fine. They can afford a bunch of expensive laywers just like Exxon hired when the Valdez spill happened. That was over twenty years ago and XOM hasn't paid a dime in fines. I'm sure they have just as many political connections as XOM does too. So what's everybody worried about. It'll be business as usual in no time.

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