There seems to be little doubt that British petroleum giant BP (BP +1.18%) will for some time be saddled with the a taint remaining from its tragic 2010 Gulf of Mexico well blowout tragedy.
The event took 11 lives, sent millions of gallons of crude oil gushing into the Gulf, and resulted in the loss of Transocean's (RIG 0.61%) star-struck Deepwater Horizon rig. As such, the lingering question becomes one of the extent to which BP is dispatching the financial consequences of that horrible day two-and-a-half years ago.
Of late, BP has been socked with $4.5 billion in fines by the U.S. Justice Department in connection with the Macondo well disaster. At the time that those fines were assessed, the company also agreed to 11 felony manslaughter counts, obviously related to the rig hands' deaths. And it further pleaded guilty to a single felony obstruction of Congress count precipitated by its alleged provision of false information about the rate that oil was cascading from the well.
More to come
The difficulty in assuming that the aforementioned fines and pleadings essentially wrap up the company's liabilities and permit it to function normally in the Gulf -- where it remains the biggest producer -- or even in increasingly important Angola, is that there clearly is a likelihood of far more to come. Continuing to lurk in the shadows for London-based BP is the specter of even larger judgments potentially resulting from yet-to-be-adjudicated civil claims that remain in the government's gun sights.
Should Justice succeed in making a claim stick that the company was guilty of "gross negligence" in the spill, the recently assessed fines could be as much as quadrupled by another call on the company's cash. What lies down the road could potentially hit $20 billion. And while the betting is for a lesser amount, perhaps something closer to $10 billion, it's clear that BP continues to face a long legal and financial road.
Other judgments
It's almost as if, in the company's case, a billion dollars assessed here and another billion there begins to sound almost insignificant. Nevertheless, while the company has already taken charges totaling $38.1 billion, it will now take another hit of $3.85 billion. Its recent felony fines were accompanied by:
- A misdemeanor assessment of nearly $2.4 billion to be paid over five years relative to the Clean Water Act and the Migratory Bird Treaty Act, along with another $350 million to be paid over the same period to the National Academy of Sciences. The latter will be applied to a study of the environmental consequences of drilling in coastal waters.
- A three-year, $525 million civil judgment is now payable to the Securities and Exchange Commission relating to the company's knowingly providing false information regarding the rate at which oil was being spilled into the Gulf as much as two weeks after the explosion's occurrence.
So clearly the company is anything but off the proverbial hook regarding its Gulf of Mexico Macondo apocalypse. That may have been even more starkly communicated by newly filed criminal charges against three of its employees. Don Vidrine and Robert Kaluza, both in their sixties, face "seamen's manslaughter" and other charges stemming from their alleged failure to properly interpret safety tests prior to the explosion.
David Rainey, the former head of BP's Gulf of Mexico exploration activities at the time of the tragedy has also been charged with obstruction of Congress following the statements about the spill rate. The charges against Vidrine and Kaluza could lead to 10-year sentences, while Rainey faces a possible five years of incarceration. Trials of the three would keep the Gulf tragedy front-and-center in the public's collective memory.
Buy, sell, or punt?
Amid these lingering effects of Macondo, the obvious question for Foolish investors becomes the extent to which the company's shares may be becoming alluring. After all, whether at its refinery in Texas City, Texas, or its stake in an often challenging partnership in Russia -- both of which it's unloading -- BP has a growing history of stubbing its corporate toe at regular intervals.
My approach to dealing with the question of the attractiveness of BP stock, given the lingering clouds over the company is to compare it with its big oil peers vis-a-vis regarding what I consider to be a handful of key metrics. In this case, I'm referring to ExxonMobil (XOM 1.63%), Chevron (CVX 0.96%), and Royal Dutch Shell (NYSE: RDS-B), the other key members of the big oil faction:
|
BP |
CVX |
RDS-B |
XOM | |
|---|---|---|---|---|
|
Forward P/E |
8.13 |
8.65 |
N/A |
11.25 |
|
Operating Margin |
6.45% |
15.72% |
8.40% |
11.50% |
|
Return on Assets |
5.05% |
10.25% |
15.15% |
9.31% |
|
Total Debt/Equity |
41.32 |
9.19 |
19.63 |
7.21 |
|
Forward Yield |
5.20% |
3.50% |
5.30% |
2.60% |
Source: Yahoo Finance and TMF calculations
The Foolish bottom line
As you can see, BP doesn't lead the pack in any of the above categories, except for, unfortunately, debt-to-equity. It does, however, top the group in unpredictable future liabilities.
Clearly, there is no single member of the group that should be bought to the complete exclusion of the others. However, given the above numbers, along with its power-packed balance sheet, the nature of its worldwide operations, and its generally unrecognized leadership in renewable energy, I'd reach first for Chevron. I say that despite admittedly being a BP shareholder.
