Should You Buy the Gulf Tragedy Twins?

Since that now infamous three-day period in April, when Transocean's (NYSE: RIG  ) Deepwater Horizon rig -- operated by BP (NYSE: BP  ) -- exploded and sank in mile-deep Gulf of Mexico water, I've spoken with numerous former energy colleagues.

I wasn't driven by idle curiosity, but rather by an effort to gather opinions regarding which company might have been more responsible for the tragedy that took 11 lives. After all, we Fools are investors, and as one who believes that energy shares should grace all of our portfolios, the question of spill culpability seems more than trivial. That's particularly true in the face of BP's history of mishaps, including its 2005 explosion at a Texas refinery where 15 died and dozens were injured.

Did my friends and a hearing held by an Interior Department-Coast Guard panel, along with another conducted by a Presidential Commission, help me form a comfortable opinion? The answer is a resounding yes and no. Clearly there seems to be enough blame to go around.

For instance, BP had ordered a change to the final test of the well's integrity before the rig could move to a new location. One of the keys to the change was the removal of far more drilling mud -- which prevents gas from leaking from the well -- than is typically the case. Indeed, even a BP manager, who happened to be on shore without telephone communication when the change was ordered, couldn't explain the reason for it. It seems clear, however, that the revised test went forward under protest from Transocean rig personnel.

In Transocean's corner, a key piece of rig equipment, the blowout preventer (BOP), which as its name implies, prevents the well from exploding, was clearly non-functional. While the company maintains that it had passed a host of tests leading up to the explosion, the BOP had nevertheless been altered by the driller following its manufacture by Cameron International (NYSE: CAM  ) . Further a Transocean supervisor testified that the BOP was leaking and was overdue for maintenance at the time of the accident.

Someday we'll likely be able to assess blame more closely. In the meantime, as you probably know, the likes of ExxonMobil (NYSE: XOM  ) , Chevron (NYSE: CVX  ) , and ConocoPhillips (NYSE: COP  ) are forming a rapid response unit to capture and contain oil from future spills.

Nevertheless, with blame not totally fixed, should Fools buy, sell, of waffle regarding BP and Transocean shares? I'll opt for the first choice, given each company's geographic diversity and the nosedive their shares have taken following the tragedy.   

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned.

However, he does welcome your comments or questions. Chevron is a Motley Fool Income Investor selection. The Fool owns shares in ExxonMobil. Why not try any of our newsletters free for 30 days? The Fool has a disclosure policy.  


Read/Post Comments (5) | Recommend This Article (13)

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 September 01, 2010, at 12:37 AM, JonathanSeattle wrote:

    I've been long RIG for a few weeks, so of course I agree with your conclusions; however, your article left me hoping for a little more analysis than the fact that the companies are geographically diverse and have come down a lot. The stocks are suffering from an overhang of liability that won't be resovled for many months. What factors or events do you think will give these stocks lift anytime soon? An end to the drilling ban? Rising oil prices? The realization that the liabilities can't be anywhere close to the lost market cap? Thanks.

  • Report this Comment On September 01, 2010, at 11:58 AM, JonathanSeattle wrote:

    Okay, so I left off economic recovery and takeover possibilities!

  • Report this Comment On September 01, 2010, at 12:09 PM, Aventador wrote:

    I had positions in both for a couple of weeks, but after the initial pop they were drifting. In the end it made more sense to cash out the profit and reinvest. Valuations and dividends are very favorable at present if you know where to look. I bought TOT, MT and NRF from the BP proceeds and TEF, STD and ISSI to replace the RIG position. I'm happier with the new positions and the extra dividends aren't too shabby either!

  • Report this Comment On September 01, 2010, at 6:17 PM, kedo76 wrote:

    Why buy BP when you can own XOM?

  • Report this Comment On January 14, 2011, at 10:22 AM, shaman84 wrote:

    why buy bp or xom, when you can buy sdrl. with over 7% div. with no Obama hangovers.

Add your comment.

DocumentId: 1286550, ~/Articles/ArticleHandler.aspx, 4/18/2014 2:24:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement