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Oil Company Stock Potential?
Rank: Advanced Member
Posts: 25
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I read an article this morning on msn.com that suggested long-term investors might find value in companies that do offshore drilling -- which have been beaten down, of course, in light of the devastating oil spill in the Gulf.
Here's the link to the article:
http://articles.moneycentral.msn.com/Investing/CompanyFocus/spill-creates-buying-opportunities.aspx
What do other long-term investors think? Might these oil companies prove to be a good value long term, at bargain prices now? Or is it too risky that public and political sentiment following this disaster will change/limit future offshore drilling opportunities?
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Rank: Advanced Member
Posts: 262
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I think the drillers are more cyclical than the diversified oil companies. the diversifed have product to sell at all times while the drillers might shut operations during slow times. I also think they will have more defined responsibilities, in regard to being liable, as well as the big oil companies. My understanding is they operate on thin profit margins in todays enviroment. If this latest accident and ensuing damage to the seas and coastal areas doesn't push for more renewables I would be surprised.
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Rank: Advanced Member
Posts: 25
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It looks like a total disaster -- not just for the environment, of course -- but for the industry. Oil stocks are really getting beat up. But is there long-term value in any of these companies, particularly the ones that weren't involved in the spill?
I also heard on the news, interestingly, that consumers are boycotting BP Gas Stations -- a move that isn't hurting the company, but is killing the station owners. How sad.
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I didn't see a stock discussion thread yet on BP. It's a stock I've owned for some time, not happy with it's situation or the drop on stock price, of course, but thinking maybe this is a time to add to my position.
I can't see the cost of this operation exceeding, at the outside, $10 billion, and probably much less than that (reports are that they've spent $1B to date on the problem). With revenues of 265B and profit of 21B, this is an ouch but certainly manageable. This well wasn't producing any revenue yet, so their revenue stream won't be affected.
Yes, there's uncertainty, but is the uncertainty worth chopping 1/3 off the market price? I don't think so. Assuming, as I do, that the company will survive this without a major hit to their revenue stream, that the costs can be easily handled from cash flow, and that there will be a hit to their net profit this year and probably for one or two years in the future but no beyond that, my assumption is that within my five year time horizon the stock will be back to a strong earnings position and the PE will climb back up from its current 5.88 (per Yahoo) to its more normal average PE of 9.6 (per Toolkit).
Thus, it appears that what we have is a relatively short-term (relative to my investing horizon) problem but not any change in the company's long term fundamental outlook. If this is correct, it would seem that there is considerable potential profit to be made picking up the stock at a time when it is temporarily out of favor.
Thoughts??
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Rank: Advanced Member
Posts: 262
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Hey Chris, a couple of thoughts I wanted to throw in are even though they didn't have the oil in reserves yet, this is product that will be lost to future reserves. The street looks at future reserve replacement and contracts. I have read that it will be a cold day before BP gets any more government contracts. With their history of lax safety at their operations I think they will be sinking a lot of dough into that area even before they drill again. Some EPA officails have also said that they could be fined as much as $4300 per spilt barrel. If willful negligence is proven I can't even begin to think how many lawsuits will be lining up to get their day in court. I see BP as using a lot of resources for clean up, litigation, safety improvements where they should be drilling for resources. I sold all my BP, the first 100 when the rig exploded and another 100 the week after the dome "fix" didn't work. On CNBC analysts say even if they make it through this they might be hit so hard as to become a takeover target. Only a couple would be big enough to take on that cost like XOM or Shell. The question is, do they want to buy that legacy?
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Rank: Advanced Member
Posts: 262
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Rank: Administration
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We can create a BP forum if you'd like.
Here's an interesting article today about BP's dividend -- the commentator suggests that BP pay its $3.38 per share dividend with stock instead of cash, since there is some question about whether BP will be able to pay its indicated dividend, for political reasons if nothing else.
http://www.peridotcapitalist.com/2010/06/given-its-financial-strength-bp-should-pay-its-dividend-in-stock-rather-than-cut-it.html
Doug
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Rank: Advanced Member
Posts: 262
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Hmmm, he said he was buying for his clients, not for himself. Guess he doesn't like home cookin'!!!
Pay out the div before the lawyers get it. Another option that is never stated is suspend all exec bonuses and use those to offset liability claims!!!
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I am new to buying stocks for myself. But i have been reading alot about the up and coming of oil sands in Canada. Does anyone think this might be something to look into? Stocks i have looked at have been (SU) Suncor Energy and (NOA) North American Energy Partners and (CNQ) Canadian Natural Resorces. I would love to hear some ideas on this.
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