Intelligent Investing
BP’s Leaky Value
Alexandra Zendrian, 05.21.10, 7:00 PM ET
It’s been a month since the Gulf of Mexico oil spill began and the region’s water quality isn’t the only thing that’s taken a nosedive. British Petroleum’s stock price is down 26.79% in the last month. Until the company stops the spill, BP’s stock could continue to slide.
British Petroleum launched a live webcam of the oil flowing from under the ocean on May 21. While this webcam helps with the perception of accountability after the spill, it won’t ease the public’s outrage over the spill now that they can watch it live.
BP said on May 20 that it is still working on collecting oil from what it calls a “riser insertion tube tool containment system.”
“The volume of oil and gas being collected … at the end of the leaking riser is estimated to be about 3,000 barrels a day of oil and 14 million standard cubic feet a day of gas,” said BP in a press release. BP also noted that the use of this tube, “remains a new technology and both its continued operation and its effectiveness in capturing the oil and gas remain uncertain.”
Down 27% since the spill began, BP stock owners could be in for more of a downfall. “There’s still plenty of room to go down,” says Raymond James research associate Alex Morris. Morris says BP’s tumble is mostly related to the Gulf of Mexico spill, but he also points to the energy sector being down in the last few weeks. The iShares Dow Jones U.S. Energy Sector exchange-traded fund is down 13.21% in the last month.
Prior to the Gulf spill, Raymond James had an outperform rating on the stock. Since the spill, BP was given a market perform rating based on the “legal overhang that will remain for the foreseeable future with lots of lawsuits being lobbed at BP,” Morris says. senior analyst Darrell Jobman says BP has a sizable public relations problem. “It’s not just the current Gulf situation but a refinery explosion in Texas a few years ago that seems to indicate some poor management judgment. Put that together with the current economic scenario with the euro and European economy and you have plenty of reasons for more pressure on oil prices and oil companies.”
Jobman forecasts that BP could be pushed down to $35, a level that it dropped to in 1998, 2003 and 2009. It’s currently trading at $43.95. “Eventually, though, I see the strong pressure now leading to a good buying opportunity in BP if it sinks to $35, although I like the Exxon-Mobil and ConocoPhillips stories better,” he says.
The other companies involved in this spill, Halliburton Company, Cameron International Corp. and Transocean, have also plunged since the spill with Transocean falling the most in the past month.

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