Whitney Tilson's Bull Case On BP

There are some, like Pimco and Whitney Tilson's T2, who enjoy talking
their book, and demonstrating they just love to live dangerously by
buying the stock of a company which has an Upside/Downside
ratio of 1 (or 100% on both sides, with the government dead set on
pushing the "equation" solidly to the D side). Then, there are those,
who would rather go to Vegas, breathe in deeply some beta radiation
courtesy of the Us DoD and DoE, play some serious blackjack, get the
presidential suite and all the Grey Goose comped, and have the very
same wining odds as a BP investment, even as the house is gamed to win
in the long run (thank you HFT). Also, in Vegas, you would actually
cheer for a Hurricane (especially
at a boxing match at the MGM). If you are long BP, and the word
hurricane was uttered, you'd be done. For those in the first camp,
below, courtesy of My Investing Notebook,
is Whitney Tilson's case on why BP's stock price belongs tens of
dollars higher. For the sake of Blackrock and every pensioner in the
UK, we hope Tilson is correct.  For now, he has a ways to get above
hist cost basis.

---

Why We're Long BP

We recently established (and disclosed publicly on CBNC; see here and
here) a modest (4-5% of our funds) position in BP, and the blowback has
been unlike anything we’ve encountered in our careers – and being value
investors, we’ve owned a lot of unpopular stocks over the years! This
blowback, combined with hysterical headlines, rumors and speculation,
have not shaken our confidence, but rather reinforced it, as we love
buying when other investors are panicking.

And panic there is: even with the rebound of the past two days, the
stock is down 44% since the Deepwater Horizon accident, the
credit-default swap spreads have widened to all-time highs, seven
analysts have cut their rating this week alone, and well-known energy
investment banker Matt Simmons said on Wednesday that “I don't think BP
is going to last as a company for more than a matter of months.”
Politicians at all levels are engaged in ever-more-heated
tough-sounding rhetoric, including President Obama saying that he would
fire BP’s CEO, Tony Hayward, if Hayward was his employee. Finally,
while BP has said it will pay for the clean-up and direct damages to
those affected by the spill, the Obama Administration is going a step
further and threatening to force BP to cut its dividend and “repay the
salaries of any workers laid off because of the six-month moratorium on
deepwater exploratory drilling imposed by the U.S. government after the
spill.”

So why on earth would we own the stock of this pariah company? And if
we think it’s cheap, why don’t we wait for the dust to settle, the
panic selling to stop, and for the outlook to become more clear, and
then buy it when it’s safer to do so? The second question is easy:
because by the time the outlook is clear, the stock will be at least
50% higher. The former is a tougher question, which we discuss at
length below, but in short we own the stock for two simple reasons: 1)
BP is not going bankrupt. It is the 4th most profitable company in the
world, which means it’s highly likely that it will be able to cover the
clean-up costs plus all damages/fines/lawsuits, especially since these
costs will be spread out over many years; and 2) the stock is
extraordinarily cheap, currently trading 5.4x this year’s estimated
earnings (it’s also yielding 9.9% at today’s closing price of $33.97,
but the dividend may be suspended temporarily, as discussed below).

Note that in owning the stock, we are not defending the company or its
CEO. BP appears to have an atrocious safety record, and it wouldn’t
surprise us if regulators and the legal system determine that it cut
corners on the Deepwater Horizon rig, leading to the tragedy.
Compounding this, BP so far has botched both the clean-up and the
public relations. We think the company should have to pay for all of
the damages it has caused, plus a huge fine. Thank goodness BP is so
profitable that it should be able to pay for all of this.

Here are the key questions about which we’re thinking:

1) How big is the spill today and how bad could it get? How much could
the clean-up cost, and what might legal liabilities be – and,
critically, over what time period might BP have to pay? Are there any
relevant precedents?

2) How profitable is BP? What do its balance sheet and free cash flows
look like? Does BP have the liquidity to handle this crisis?

3) How much might future profits be impacted? What would be the impact
of a permanent ban on offshore drilling in the Gulf of Mexico? How
tarnished are BP’s brand and reputation, and what might be the impact
of this?

4) What if BP cuts its dividend? If need be, could it raise cash in other ways?

5) Regardless of how cheap BP’s stock is, is it immoral to try to profit from owning it, in light of the company’s bad behavior?

We address all of these questions in Appendix A (below), but in
summary, we think what’s happening to BP right now is similar to the
overall market in March 2009: the near-term fundamentals are terrible,
nobody knows when they will improve, and fear-mongers dominate the
headlines. But for investors with courage, conviction, and an outlook
longer than a few months, we think this market overreaction is a
wonderful buying opportunity.

Appendix A
Question 1: How big is the spill today and how bad could it get? How
much could the clean-up cost, and what might legal liabilities be –
and, critically, over what time period might BP have to pay? Are there
any relevant precedents?

These are the most important questions, and the lack of
clear answers has caused investors to sell first and wait for answers
later. The fear is that, regardless of BP’s profitability, the company
will be swamped by astronomical liabilities associated with untold
environmental damage.

Given that these liabilities can’t be known with any degree of
certainty, how can we get comfortable owning the stock? The answer is
that we think we can make some reasonable guesses, based on numerous
precedents, and while we can’t rule out a disaster scenario entirely,
we think that the expected value among many different possible outcomes
makes this an attractive risk-reward situation.

Wall Street analysts are scrambling to come up with loss scenarios –
for example, here’s what J.P. Morgan Cazenove analysts write: “BP’s
loss of relative value has overshot a worst case. The sum of clean up
costs ($5bn), a fine under the Clean Water Act ($8.1bn) and litigation
($16bn) is around $29bn.” Other analysts are in the $30 billion range
as well. (Note that BP has paid roughly $1.4 billion to date.)

$30 billion is less than one year of operating income for BP. Even if
the total amount is double or triple this, keep in mind that the payout
on these liabilities will be over many, many years, allowing BP to earn
its way out of trouble (similar to what the nation’s big banks are
doing right now). This is a critical point that isn’t being discussed:
everyone is focused on what the total costs to BP might be, without
asking the equally important question of when BP might have to make
these payments. The clean-up costs will be spread out over the next few
years, and the legal liabilities and fines over a much longer period.
In the case of the Exxon Valdez oil spill, for example, the Supreme
Court didn’t make a final ruling until 2008, 19 years after the spill.

But what if the liabilities are much larger? What if the spill
permanently destroys the ecosystem and tourist industry in the Gulf of
Mexico? In this case, BP’s shareholders will likely get wiped out. But
is it likely? We think not.

Pretty much the only good news about this spill is that the Gulf of
Mexico is huge, covering 615,000 square miles of surface area and
containing 660 quadrillion gallons of water. Let’s compare this to the
amount of oil spilled, where one team of scientists just estimated
that “the Deepwater Horizon well is most likely spewing at least 25,000
barrels of oil a day, and may be producing 40,000 or even 50,000
barrels a day” – more than double the high end of current estimates.

Let’s take the high end of 50,000 barrels per day and also assume that
the well isn’t capped until mid-August, four months after the accident.
Let’s also assume that the cap captures no oil (the latest reports are
that it may be capturing most of the oil, but let’s be conservative).
50,000 barrels/day x 120 days x 42 gallons/barrel = 252 million gallons
of oil released.

252 million divided by 660 quadrillion is one gallon of oil for every
2.6 billion gallons of water in the Gulf of Mexico. That’s equal to
roughly one ounce of oil spread over 300,000 bathtubs full of water.

Of course the oil from the Deepwater Horizon spill isn’t spread out
evenly throughout the Gulf of Mexico, and we’re certainly not
minimizing the severe environmental damage. We’re simply pointing out
that – while it may not be politically correct to do so in this
emotionally charged environment, with scenes of dead oil-covered birds
– the Gulf of Mexico (and the beaches, tourist and seafood industries,
etc.) will likely recover from this spill.

Our belief that, eventually, this too shall pass is rooted in five
precedents, all of which bode well for the Gulf of Mexico (and BP).

1) Though almost nobody has heard of it, the second largest oil spill
ever was in the Gulf of Mexico in 1979. Ixtoc I, an oil well owned by
Pemex, Mexico’s state-owned oil company, suffered a blowout and spewed
an estimated 30,000 barrels of oil per day into the Gulf for nearly 10
months. An oil slick covered about half of Texas’s 370-mile gulf
shoreline, devastating tourism. Did this bankrupt Pemex? Hardly. It
spent $100 million to clean up the spill, avoided paying compensation
by asserting sovereign immunity, and Texas beaches recovered quickly.

Here’s an excerpt on it from a recent Newsweek article, Four Environmental Disasters Worse Than the Deepwater Horizon Spill:

Ixtoc Blowout, 1979
News reports on the 1979 blowout of an undersea oil well off the
Gulf of Mexico seem all too familiar today. There was a failure of the
“blowout preventer,” an undersea fail-safe device that is supposed to
close off a gushing pipe. There were frustrated reports about the
Mexican government vastly underestimating the volume of oil gushing
from the seabed, much like the lowball guesses from BP in April.


Day after day for a span of 10 months, a torrent of oil rushed into
the Gulf of Mexico after the initial explosion near the Yucatan
Peninsula. The spill was checked only in part by a cap that was lowered
over the leak to siphon off a portion of the flow. After four months an
oil slick had covered about half of Texas’s 370-mile gulf shoreline,
devastating tourism. Only by drilling two relief wells to connect to
the initial hole, then pumping mud and concrete into the gushing pipe
could Petroleos Mexicanos, or PeMex, Mexico’s national oil company,
stop the leak.


“The accident does suggest that blowout prevention equipment is not
designed to handle the worst emergencies,” The New York Times wrote in
an April 1980 editorial after the leak was finally capped. “Could a
blowout in American waters be quickly capped and cleaned up?”


By the easiest measure—volume of oil spilled—PeMex’s Ixtoc I oil
well was far worse than the Deepwater Horizon well: 140 million gallons
of oil poured out of the Mexican well, compared to the estimated 94.2
million gallons that could escape from the well near Louisiana by
mid-August, when a relief well is expected to be complete. (The worst
oil spill in history occurred in 1991, when the Iraqi army ripped apart
Kuwait’s oil infrastructure and released more than 252 million gallons
during the Persian Gulf War. The Exxon Valdez crash in 1989 released
10.9 million gallons.)

2) Consider the Gulf War oil spill
in 1991, the largest ever, when Iraqi forces, to foil a potential
landing by U.S. Marines, deliberately released an estimated 11 million
barrels of oil into the Persian Gulf, creating a slick that reached a
maximum size of 101 by 42 miles and was 5 inches thick in some areas.
Roughly 10 times the amount of oil than has been spilled in the Gulf of
Mexico so far was released into a much smaller body of water (the
Persian Gulf is less than 1/6th the size of the Gulf of Mexico by
surface area and has an average depth of only 160 feet and a maximum
depth of a mere 300 feet vs. a maximum depth in the Gulf of Mexico of
14,383 feet).

There is some dispute about the long-term environmental damage, but according to an article
in the NY Times, “a 1993 study sponsored by UNESCO, Bahrain, Iran,
Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates and
the United States found the spill did ‘little long-term damage’…About
half the oil evaporated, a million barrels were recovered and 2 million
to 3 million barrels washed ashore, mainly in Saudi Arabia.”

3) In 1989 the Exxon Valdez tanker hit a reef and dumped 250,000
barrels of oil into Alaska’s pristine Prince William Sound. The spill
covered 1,300 miles of coastline, 11,000 square miles of ocean, and
killed thousands of animals. BP’s spill is much larger and is in a more
populated, economically sensitive area, but it’s worth noting that the
total cost to Exxon was only $3.5 billion (after multiple appeals
courts and finally the Supreme Court knocked a $5+ billion judgment
down to $507.5 million).

4) A recent New York Times article
speculating on a BP bankruptcy filing mentioned Texaco’s 1987
bankruptcy filing, but failed to include a critical piece of
information: that Texaco’s shareholders, far from being wiped out, in
fact weren’t harmed at all. Here’s an excerpt from the NY Times article:

This outcome might seem far-fetched right now. But on Wall Street
bankers have already coined a term for it: “the Texaco scenario.”


In 1987, Texaco was forced to file for Chapter 11 because it could
not afford to pay a jury award worth $1 billion to Pennzoil. That award
had been knocked down by a judge from a whopping $10.53 billion.
(Pennzoil successfully sued Texaco for “jumping” its planned merger
with Getty Oil, in part, by moving the case to local court near its
headquarters. The jury awarded triple damages.)

And here’s an excerpt from a 1987 Time Magazine article, explaining what really happened:

The $10 billion legal battle royal between Texaco and Pennzoil
clearly entered a new and murky phase after the country's third-ranking
oil company (1986 sales: $32.6 billion) made its bombshell decision on
Sunday, April 12, to file for Chapter 11 protection. Whichever side was
right in the dispute, the horrendous legal tangle surrounding the two
firms vastly increased -- along with the business uncertainty.


Nonetheless, as New York Bankruptcy Judge Howard Schwartzberg
assumed his overseeing duties with Texaco, it seemed to many analysts
that the company had suddenly gained the upper hand in the high-stakes
brawl it had appeared to be losing. Said Sanford Margoshes, an oil
analyst at the Shearson Lehman Bros. investment firm: "Texaco has
bought time. Its prospects are not as bleak." Wall Street seemed to
agree. When the New York Stock Exchange opened trading after Texaco's
bankruptcy filing, the company's stock dropped from 31 7/8 to 28 1/2 a
share. Then the holdings rebounded, closing last week at 31 1/4.
Pennzoil shares, which had surged from 79 3/4 to 92 1/4 during the
previous week, plunged by more than 15 points the day after the Chapter
11 action and closed the week at 78.


The Big Board seemed to judge that Pennzoil's combative chairman, J. Hugh Liedtke, 65, had overreached himself in the dispute.

5) But what about the precedents for tobacco, asbestos or breast
implants? The latter two bankrupted numerous companies, so why won’t
this happen to BP? In large part because the legal environment has
changed: it’s much more hostile to mass tort actions, thanks in large
part to a conservative majority on the Supreme Court. If the asbestos
or breast implant class action cases occurred today, the outcomes would
likely be very different – witness, for example, the outcomes of the
lead paint cases against Mattel and paint manufacturers.

The closest analogy to today’s situation with BP is, we believe, the Vioxx
crisis in late 2004 when Merck withdrew one of the most prescribed
drugs in history from the market due to an increased risk of heart
attacks – a risk Merck had known about years earlier, but had not
disclosed. Based on speculation that Merck’s liability could be as high
as $50 billion, the stock tanked from $45 to $26 in less than two
months in late 2004. Here’s what Jim Cramer wrote at the time:

Please don’t read the articles that tell you that Merck will come
through this whole because, after all, it’s a great American company,
and great American companies always come back if you just buy and hold
’em.


Close your eyes and ears to the Merck sirens, because they don’t
know what they are talking about. They are naïve. All of them. Because
they don’t recognize that with the Vioxx debacle, Merck, overnight, has
become the trial lawyers’ next big score, the next big bankruptable
company out there. The Merck lovers don’t understand the vast powers of
the mass-tort bar. They underestimate the power of the American
judicial system to wipe out companies, innocent or guilty, for fatal
mistakes. They don’t get that the plaintiffs have all the cards in
these lawsuits and management has none. In fact, if I were the New York
Stock Exchange, I would put a big skull-and-bones warning label on
Merck’s stock that would say: “Warning—the security you are purchasing
may end up worthless to you. All Merck stock bought after the recall of
Vioxx might soon belong to those class-action plaintiffs who used Vioxx
after the time when Merck knew that Vioxx may be lethal.”

So what happened to Merck? It has settled nearly all of the claims for
around $5 billion, has won nearly all of the cases that reached juries
(with relatively small awards in the losses), and the stock rallied to
over $60 in the subsequent three years.

Question
2: How profitable is BP? What do its balance sheet and free cash flows
look like? Does BP have the liquidity to handle this crisis?

According to the Fortune 500, BP has the 4th highest
revenues of any company in the world, and also earns the 4th highest
profits, trailing only Gazprom, Exxon Mobil and Royal Dutch Shell.
Profits were depressed in 2009 due to the global economic crisis, but
analysts are projecting (and robust Q1 results affirm) operating
profits of around $34 billion ($93 million per day) in 2010 and net
income of around $22 billion, consistent with the 2005-2008 average.
(These estimates are before Deepwater Horizon costs are factored in.)

BP has an exceptionally strong balance sheet, that has been getting stronger over the past few years, as this table shows:

According to CA Cheuvreux, “BP has over $5 billion of accessible cash
on its balance sheet, $5 billion in banking facilities, and $5 billion
on standby alliance. BP has thus got considerable fire power to deal
with the costs as they accrue.”

BP’s cash flow statement is also healthy, as this table shows:

Very simply, BP takes its $30 billion of operating cash flow (it’s
averaged $29.7 billion over the past four full years) and reinvests
two-thirds of it into the business and pays the rest out as a dividend
to shareholders.

In summary, by any measure BP has extraordinary financial strength.

Question
3: How much might future profits be impacted? What would be the impact
of a permanent ban on offshore drilling in the Gulf of Mexico? How
tarnished are BP’s brand and reputation, and what might be the impact
of this?

A key pillar of our investment thesis on BP is that the
earnings power of the business remains intact. We’ve heard two contrary
arguments: the first is that BP’s entire offshore Gulf of Mexico
operation, the largest of any company in the region, could be shut down
permanently. While we think this is unlikely, BP could weather this hit
as it accounted for only 15.3% of BP total oil production and 3.6% of
natural gas production in 2009.

To consider an even more extreme scenario, what if BP stopped (or was
forced to stop) doing business in the U.S.? Even then, BP would
survive: in total, the US accounted for 33.3% of BP’s exploration and
production profits in Q1 2010 (E&P was 93.2% of BP’s total
operating profit).

The second argument is that BP’s brand and reputation have been so
tarnished, or the rumors about BP filing for bankruptcy have so spooked
folks, that drivers will shun BP’s gas stations and BP’s counterparties
won’t do business with BP or demand onerous terms like cash prepayment.
It’s an interesting theory, but we can find no evidence for it – and
we’ve looked.

Our best guess is that when all is said and done, BP’s normalized
profits might be a few percent lower due to this crisis. There will
surely be expensive new safety regulations (which will apply to all
offshore drillers) and BP may lose some business with the U.S.
government (it’s currently the “top supplier of refined fuel, including
jet fuel, to the Department of Defense last year. It was also one of
the top suppliers of gasoline, diesel and other fuels to the federal
government.”).

Question 4: What if BP cuts its dividend? If need be, could it raise cash in other ways?

There’s a great deal of speculation that BP might be forced
to cut or even suspend its dividend (currently 9.9%) due to the costs
of the cleanup and/or political pressure (the Obama administration is
pressuring BP on this front and recent reports are that the company
will indeed do so).

From an investment perspective, we don’t really care, as we don’t own
the stock for the dividend. In the short term, a dividend cut would
likely lead to a drop in the share price, but it might be wise for the
company to retain its earnings and strengthen its balance sheet.

From a financial perspective, it doesn’t appear that BP will be forced
to cut its dividend unless clean-up costs rise dramatically (the vast
majority of the legal liabilities, which will likely exceed clean-up
costs, won’t be paid for many years). Costs to date have been $1.4
billion, BP has plenty of cash and liquidity, and in the seven weeks
since the accident, it has earned nearly $5 billion in operating
profits.

The political question is trickier. It’s not clear cut that the U.S.
can (or should) force BP to cut or suspend its dividend, and this could
become a testy issue between the U.S. and one of its closest allies, as
this article notes:

Almost every pension fund in the U.K. owns shares in the energy
giant, raising serious questions about the impact the firm's plummeting
value will have on the retirement plans for millions of Britons.
President Barack Obama's threat to block a BP dividend payment in order
to ensure victims of the spill get compensation has also sparked
widespread alarm.


“Obama’s boot on the throat of British pensioners” read the
front-page headline in Thursday's Daily Telegraph, which added that the
president's "attacks on BP were blamed for wiping billions off the
company’s value."


“U.K. alarm over attack on BP” was the Financial Times' take on the
crisis, which it suggested could damage transatlantic relations. The
newspaper accused President Barack Obama of employing "increasingly
aggressive rhetoric" against BP.

And this Financial Times article
notes that BP pays 12% of the total dividend income of the UK market.
Finally, according to BP’s web site, U.S. investors own 39% of BP’s
stock (almost as much at the 40% by UK shareholders), and the company
has over 430,000 small shareholders (less than 10,000 shares).

In a worst-case scenario, BP could of course suspend the dividend, but
what if it needed more cash? The obvious next step would be to cut cap
ex, a far bigger expense than the dividend (the dividend is currently a
bit under $11 billion annually vs. an average of $21.7 billion in cap
ex annually over the last two years). In its Q1 2010 earnings release,
BP gave the following guidance for cap ex: “For 2010 as a whole, we
continue to expect organic capital expenditure of around $20 billion
and disposal proceeds of $2-3 billion.”

It’s hard to know how quickly and by how much BP could cut cap ex, but
one clue is that “Depreciation, depletion and amortization and
exploration expenditure written off” – often a reasonably proxy for
maintenance cap ex – was $12.7 billion last year.

Finally, BP has valuable assets all over the world – property, plant
and equipment on the balance sheet is worth $108 billion – but of
course it would take time to sell.

Question
5: Regardless of how cheap BP’s stock is, is it immoral to try to
profit from owning it, in light of the company’s bad behavior?

As noted earlier, BP appears to have an atrocious safety
record. In owning the stock, we are not endorsing its behavior, either
before or after the Deepwater Horizon accident. But as value investors,
we sometimes have to hold our noses when we invest because the cheapest
stocks are often the ones of companies that have behaved badly or are
otherwise tainted. Example include McDonald’s, which many believe bears
responsibility for the obesity epidemic in this country (see Fast Food Nation and Super Size Me), and Goldman Sachs, which many blame for the global financial crisis (see The Great American Bubble Machine).

That said, we would have a problem owning stock in a company if we
believed that’s its core business harmed people – most subprime lenders
at the peak of the housing bubble, certain multi-level marketing firms
and tobacco companies come to mind. BP certainly doesn’t fall into this
category.

As for BP’s safety record, we don’t defend it, but we don’t think BP is
deliberately blowing up its own rigs and refineries and killing its
employees. If an email emerged that the CEO or board of BP were warned
that the Deepwater Horizon rig was likely to explode and failed to act,
we would certainly rethink the morality of holding the stock.

Comments

[I need more asshats]

She's a pig waiting for lipstick.

[ZerOhead]

Speaking of pigs Mr. Asshat... why not lead them to the slaughter?

If you want this nightmare to end why not help me plan it out at "How to Peacefully Overthrow an Oligarchic Kleptocracy" (for Dummies) in the General Forum threads... please tell this nutty critter why it can not be done and win some kind of prize!

[I need more asshats]

http://finance.yahoo.com/q?s=BP110122C00050000

**edit**
Jan11 50 calls are solid. We're looking for it to trade north of $60 by Jan11.

[ZerOhead]

Thanks for checking it out Asshat... guys I think I have found away through an obscure procedural procees to democratically take back control of the US Government!

Give me some help here! Please wake the fuck up people I'm serious!

No-one has found a problem with it yet!

http://www.zerohedge.com/forum/how-peacefully-overthrow-oligarchic-klept...

[Fish Gone Bad]

A book similar to the one you are speaking of already exists The Theory and Practice of Oligarchical Collectivism.  Orwell wrote about it in 1949.

[ZerOhead]

http://www.zerohedge.com/forum/how-peacefully-overthrow-oligarchic-klept...

Read it Fish... seriously I think will take them down. please comment on what you think I need feedback now!

Thanks!  ~ZerO

[Crummy]

Maybe "she" can borrow some from Dominique Strauss-Kahn when they go golden parachute handbag shopping together before the big girls who are actually guys night out.

[LoneStarHog]

Personally I would like to take every one of these Whore Street bitches and strap them to a Polygraph, which is wired to a Mossberg 12Ga pointed between his/her legs.  THEN ask him/her to repeat what was said/written...

A real wet dream...

[drwells]

The worst offenders drink their own Kool-Aid and would pass.

[arnoldsimage]

in other words... sold to you. right whitney? you're so slick.

[Muir]

FEDERAL WATER POLLUTION CONTROL ACT

 

[As Amended Through Pub.L. 110-288, July 29, 2008]

†

(33 U.S.C. § 1251 et seq.)

(D) G

http://www.waterboards.ca.gov/laws_regulations/docs/fedwaterpollutioncontrolact.pdf

______

"GROSS NEGLIGENCE—In any case in which a violation

of paragraph (3) was the result of gross negligence or willful

misconduct of a person described in subparagraph (A), the

person shall be subject to a civil penalty of not less than

$100,000, and not more than $3,000 per barrel of oil or unit

of reportable quantity of hazardous substance discharged."

http://www.waterboards.ca.gov/laws_regulations/docs/fedwaterpollutioncontrolact.pdf

______

That's $3000 per barrel

[Muir]

____

150 * 60 000 * $3 000 = $27 000 000 000

____

Guess I should load up on BP

[Remington IV]

Obama's playing golf again

[russki standart]

This is definitely the Bull Case, as in BS. Until we can quantify BP's total  financial and criminal exposure, it is impossible to calculate the downside or upside potential of BP. Whilst Mexico can claim soverign immunity since Pemex is a state company, BP cannot. Just wait till criminal charges are preferred against the management of BP....I would like to be on that jury, along with millions of others.

[bull-market_3.0]

He makes a strong case for owning BP. Am I the only one who thinks so? 

[russki standart]

I respect your convictions, but until damages are reasonally quantified, you are gambling, not investing. When I know that 90% of the oil flow out into the GOM is capped and/or captured, I will stay on the sidelines.

[dark pools of soros]

then when a hurricane or even a tropical storm or two roll in the next month??  then you have 100% of the flow going into the water again for 4-5 days per storm... at least 20% more is coming out since they had to make the clean cut

BP won't be allowed to drill or even operate around here after that - i feel their american operations are going to be sold off to Exxon, etc - pick up the stock in the low 20's or maybe even the teens

[jedwards]

I bought 1000 shares of BP based on similar reasoning.  Buy when people are fearful, sell when people are greedy.

The US wants a weak BP, not a dead BP.  As well, they cut the dividend and the stock went up.  I think all the bad news is in the stock now.  It could retest the lows of $29 but I think from this point the bad news should be bearable, unless something really horrible happens, like if oil uncontrollably seeps from the seabed because the well is completely damaged.

The drilling of the relief well is going ahead of schedule so it should be done some time in late July.  That should be the good news that everyone is waiting for.

[dark pools of soros]

see my reply from above...  a few tropical storms and BOP will be pushed out of american operations..  pick the stock up half of what it is now and they'll still make money outside of america

[Cursive]

He makes a strong case for owning BP. Am I the only one who thinks so? 

No.

[ghostpirate]

man dont drink this douchebag's koolaid.  not sure it hits BK but i find it very hard to see this as pushing out above-average returns in the next year or so...

[russki standart]

As an addendum, I do not believe that all of the 'bad news' is compounded into BP stock. Until the media blackout is lifted from the GOM, only a few insiders actually know what is going on, and from their postings on oildrum.com, the situation is far worse than commonly understood. I like the idea of buying when everyone is selling, and I actually took a speculative position in BP at $37.00. I bugged out at $33.40 when I realized that I was being naive as to the extent of damages.

Personally, I hope I am wrong and BP stock recovers, since this means damages will be minimal and I will be able to scuba dive in the keys, and hand around Pensacola, oogling the college girls.

[ZackAttack]

I guess guys like Tilson, Marty Whitman, et al, are all too smart to look at a chart.

I look at the BP chart and see no support until the low 20s. I also think support levels from almost 20 years ago are meaningless.

On the shortest of time scales, I see a pennant, usually a continuation formation.

I predict pain.

[DMA Trader]

As you probably have noticed, not a lot of chartist are in Forbes top lists. 

[chistletoe]

Technical analysis rather resembles a couple of other well-known sciences,

those of reading tea-leaves and palm lines to divine the future.

The jargon are extremely elaborate, enough to supply whatever interpretation

the astute prognosticator already believes in the first place.

Some of the people who do the reading become extremely successful.

Those who pay to hear the readings, however, somewhat less so.

[Brett in Manhattan]

There was a time when charting worked: about 110 years ago when it was a new technique.

The chartists identified accumulation and distribution points, jumped on the bandwagon and made money.

However, like all systems, the insiders at the exchange got wind of it and began to work chartists at every opportunity.

The real problem with charting is that you're playing with your cards face up. In poker, if you can be counted on to bet in certain situations you can be exploited. Same holds true in the stock market.

[Diogenes]

In the late 19th and early 20th century charting was a good way to uncover the actions of the big shareholders and insiders who were manipulating a stock's price. By identifying accumulation, and distribution, an investor could tell when a stock was being pushed up or down. One big speculator said he would not buy a stock unless he saw signs of insider trading. If the people who know the company and its prospects best don't want it, neither did he.

With the financial reforms of the Roosevelt era the blatant manipulation stopped or a least got toned down, and that form of chart reading ceased to work. But now...

[ZackAttack]

And, let's see, how are Buffett, Tilson, Whitman doing the last couple of years?

Whitman's Third Avenue Value, 68 at the peak in 2007, fell to 25 (ouchies!), now at 42. His share/bagholders are still down a third.

Tilson's Focus fund, 13.25 at the peak, fell to 4.62 (too bad if you needed that money right then!), now at 11.65. At least his bagholders are only down barely double-digits.

Buffett, BRK-B peaked at 89, fell to 46, now at 79. It's *good* to be the world's biggest bailout queen and to have the bully pulpit of the New York Times to exhort the little people to buy buy buy right ahead of the *real* losses. 

Look at the scoreboard. If they're so goddamned good, how come they've lost you money the last three years? If they're so goddamned smart, how come their methods didn't see the bear market coming? Big bad bear of either 2008 (double-top with negative divergences) or 2000 didn't touch this humble chartist's capital, and doubtless that of many others like him.

And actually, on edit, let's take a look at that Forbes list.

Right away, out of the top 18, I see 6 (Ambani, Arnault, 4 of the Wally World family) that are inheritance babies. So there's 1/3rd of them, born so rich they couldn't screw it up if they had to.

Helu, Gates and Ellison, we know that story, presided over tech-telco companies during the Nazbubble and aren't really noteworthy for their investing prowess. Gates has those Cascade Partners guys, best I can tell from reading their filings, they're just a plain-vanilla deep value shop.

Batista (mining guy son of a government mining minister), Mittal presided over emerging-market cyclicals during the US's corporate plantation model.

Ortega sells clothes in Spain.

Clown Prince Alaweed, I'd imagine a lot of his fortune is inherited too. Wonder if he ever sold any of that Citigroup he bought in '91? And if he did anything to mitigate being 80% down in his latest buy?

Uncle Warren the only pure investor in the list. I know he's right below motherhood, virginity and apple pie on the list of revered shit, but I think a lot of it is that he started his career in the postwar era, right after we'd ended a Great Depression. Yeah, he's up on those GE and GS buys, but ONLY because a corrupt US government prevented both of those from going to zero, which was exactly what they were going to do.

[Pooh-Bah]

The question is:  Would the BK of BP somehow be in the best interests of the Rothschild family?  If not, BP will have liquidity.

[putbuyer]

If the market kablops, then all boats run aground - BP too. Very risky bet. I am looking at puts myself.

[Muir]

Yeap.

Never know when one of those "fat" fingers will be typing.

[Atomizer]

Top 10 CDS Positions

The following charts list the single-name reference entities with the most notional outstandings on a net and gross basis. This information is provided by DTCC Deriv/SERV LLC, a subsidiary of The Depository Trust & Clearing Corporation ("DTCC").

http://www.isdacdsmarketplace.com/exposures_and_activity/top_10_cds_positions

[tom a taxpayer]

Thanks, Atomizer. Interesting information.

[DMA Trader]

Very good article. 

Starting to get better again ZH 

I'm glad. 

[Oracle of Kypseli]

What if......

Obama promised to backstop BP in exchange of making him look good.

BP puts 20BL in an escrow account and Obama used BP as a clearing house to funnel $$ to his associated companies for cleanup and when BP is about to be bankrupt, he comes up with this gem:

"We can not let BP fail and not reimburse the victims."

Wide open government checkbook.

Think guys! It is proven that thieves have very high IQ's. Obama has high IQ. 

[ghostpirate]

personally i think this is long-only horse shit.  

anyone else find the following statements to sound like undergrad (late night, making shit up) b-school garbage to get your paper turned in:

1. According to the Fortune 500, BP has the 4th highest revenues of any company in the world, and also earns the 4th highest profits, trailing only Gazprom, Exxon Mobil and Royal Dutch Shell.

2. BP has an exceptionally strong balance sheet, that has been getting stronger over the past few years, as this table shows:  (show generic table that is really meaningless)

3. BP’s cash flow statement is also healthy, as this table shows: (again show generic table that has no comp reference looks kindergarten to me)

Tilson can kiss my pirate ass with his generalizing, broad, and generic statements....until that son of a bitch is plugged up I see this as nothing more than pushing his book.  the same old shit wall street, pushing the retail masses to believe a bunch made up crap.

[Thunder Dome]

If someone wants to invest in this story RIG is much better long.  BP just keeps acting like a dog.  It should have rallied last week and fell on its face yet again.

[williambanzai7]

I wonder what bets Taleb is making these days.

[Brett in Manhattan]

How about flipping a coin? Heads you go long BP; tails, short.

I strongly doubt any "expert" analysis will give you better odds.

[Arm]

Wow!  Whitney 5% a modest position?  Most funds run with 1 or 1.5%.  You bet the house on BP.  No wonder you are talking your book!

I have no doubt that given the US legal system with exorbitant damage claims and yes the enormous ecological damage BP would HAVE to go bankrupt but there is one issue that was not dealt in Tilson's analysis that may back him up:

- Namely, whether BP will be allowed to go bankrupt given the implications with Anglo-American relations.  Yes, the British are not too happy that one of their main companies may go bankrupt. If the US wants to maintain the century old transatlantic alliance they will have to let BP off the hook at a reasonable price. Legally it may be tricky.  Once that is accomplished, yes BP will be a buy, even in a deflationary market.

[No More Bubbles]

As noted earlier, BP appears to have an atrocious safety record. In owning the stock, we are not endorsing its behavior, either before or after the Deepwater Horizon accident. But as value investors, we sometimes have to hold our noses when we invest because the cheapest stocks are often the ones of companies that have behaved badly or are otherwise tainted.

BULLSHIT!  You, as a current shareholder, ARE INDEED ENDORSING IT!  MORE THAN SOMEONE THAT OWNED IT BEFORE THE SPILL!!!!

Anyone buying that pig deserves a 100% investment loss! Tilson is a dimwit!

Fuck BP & Fuck Tilson!

[Grand Supercycle]

EURO buying support i've mentioned over the past few weeks has resulted in a bullish basing pattern on the daily chart. The important weekly chart remains bearish though.

http://stockmarket618.wordpress.com/about