British Petroleum (BP)

As long as you haven't been living under a rock this month, you should know that BP is the culprit of one of the worst ecological disasters in human history. Here is the video of the rig exploding if you have not seen it yet (via CNN):




The oil spill has been the media's biggest story spanning every network every single day (not that I blame them). Obviously BP was at fault in this matter and their stock has taken a tremendous blow as a result:


British Petroleum (BP)

Yes, this disaster will be costly to the firm. Yes, their image may be tarnished to the general public...but a 26% drop in the stock (that's just for now) is simply too much. BP has many, many rigs in the Gulf of Mexico and has just been approved to build 27 more. If you look at the drilling activity in the Gulf it is quite simply VAST:

- via Wikipedia :)


The bottom line is that one rig is not worth 25-26% of the firm's stock price. Most of the hit has been due to the significant clean up costs which are now estimated to be around $5B:

25% of stock price= about $20B of value
Cost of spill= generously $10B

We should also take into account that BP generated over $7B in free cash flow last year alone. The company has enough cash to take care of this mess and have business continue as usual.  What is good for us value seekers is that the worst is probably yet to come. I would wait until this story dies down in the media and then invest in the company when the stock price is even lower than it is now.


BP- Terrible situation...but a very attractive buying opportunity.