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BP Hits a Gusher (and It Isn't Oil)
06/04/2013 7:00 am EST
In 2010, oil lapped up on the shores of the Gulf of Mexico after a massive explosion on BP's massive offshore drilling rig. Three years later, things are getting worse for BP, writes Dan Cypra of StockMarketToday.
The Deepwater Horizon oil spill caused quite a bit of economic turmoil in the tourist-heavy Gulf region and left many wondering if the area could ever rise back up again. Well, this author went there for Spring Break in 2012 and can say that the region is thriving. Three years after the accident, we’re nearing the end of the claims process for those whom the oil spill affected and, according to Reuters, it could get ugly.
BP, whose rig exploded, sending oil into the Gulf for nearly three months, is a publicly traded company. Yes, every time you gas up your car at its shiny green stations, you pump money into BP, which is traded by the same two-letter moniker on the New York Stock Exchange. Last Thursday, the stock was fetching $42.75 per share, down slightly and on par with the Dow Jones Industrial Average (DIA) for the day.
Let’s get back to the spill. First of all, the claims are pouring in. According to Reuters,“Of 165,877 claims filed as of May 15, [settlement officials have found] 40,970 eligible for payment, with a total value exceeding $3.2 billion, [officials said], adding that the pace of filings from the five states covered by the settlement has picked up in recent months. ”The filing period ends next April, so the $3.2 billion could be merely a fraction of what is ultimately awarded.
In fact, the same settlement officials told Reuters that they wouldn’t be surprised to see 200,000 claims filed. A separate claims process ended up paying out $6.6 billion, so if you’re an investor in BP, you’ve seen your company shell out $10 billion in claims as a result of a rig explosion three years ago, and more are on the way.
We should be fair and point out that the $42.75 share price for BP is near the top of its 52-week range. In June 2010, two months after the rig exploded and while oil was still seeping from it, shares of BP tanked to around $27 per share after registering over $60 just a few months prior. The stock has since somewhat stabilized around the $45 mark.
The Claims Process
If you think the claims group is just a small gaggle of interns sitting around a makeshift coffee table in the swamps of Louisiana, think again. According to Reuters, the “New Orleans office now employs more than 1,000 people, and still needs more help to handle the load, [officials] said, noting that some claims involve ‘huge business losses that require a ton of accounting analysis."
BP is encountering turbulence in the form of economic losses from businesses from businesses, which apparently total nearly $2 billion on their own. Reuters explained, “BP set aside about $8 billion to cover the settlement, but has expressed concern about the escalating ‘business economic loss’ payments, and has even asked the UK government to intervene.” We’re not sure if the Queen has flown over to demand justice.
Top Chef Controversy
According to Investors.com, there’s even controversy surrounding the Bravo cooking program Top Chef, which moves to New Orleans for its 11th season: “All cities on Top Chef pay to be featured. New Orleans tourism offices are paying Bravo $375,000 to sponsor the show, with $200,000 coming from the Louisiana Office of Tourism. Instead of using taxpayer money, the $200,000 is coming from the BP recovery fund.” You can see why BP might be a bit perturbed to hear that.
According to Forbes, the entire ordeal has meant more than $40 billion out the door for BP. However, its revenue was up nearly 3% in the fourth quarter of 2012.
By Dan Cypra of StockMarketToday
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