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BP, One Year After the Spill: A Slick Buy?

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  • Gross Negligence now a Negligible Risk?


  • Between the need to secure future production growth and comparisons between the current Rosneft deal and the BP oil spill media circus, there's the ultimate issue for BP: when will it get back to drilling in the Gulf of Mexico, where it is the largest leaseholder of all the Big Oil companies.

    Gulf of Mexico production for BP is in the range of 11%, and while that's the largest of the super majors, drilling on Gulf exploration projects, like the Rosneft opportunity, is part of a five-year production target at the earliest.

    "I still believe BP has the best position in the Gulf of Mexico, with the largest leases and best technology -- and, yes, they made incredible mistakes, but nevertheless they know the area well and are good at it. The U.S. needs BP and BP needs the U.S.," Oppenheimer's Gheit said with confidence.

    The cadre of long-term BP bulls aren't ready to offer a view of when BP gets back to work in the Gulf, but they contend that the single greatest risk to not getting back to work in the Gulf is the gross negligence claim that serves as an overhang on BP shares. From all recent indications, all three analysts were of the opinion that gross negligence, if not entirely off the table, is now a remote possibility.

    Argus Research's Weiss said recent comments by Michael Bromwich, the head of the government's new drilling watchdog, the Bureau of Ocean Energy Management & Research, seem to bolster the argument that BP is not a "serial" offender, and that while it has had issues on the refining side with the Texas City refinery fire, and in Alaska, as far as the Gulf of Mexico is concerned, the Macondo blowout is the only violation.

    Because the comments from Bromwich are political as opposed to legal, though, the analysts are more focused on the reports from the National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling, and from the Marine Board of Investigation report, due out in late July.

    Raymond James's Molchanov said his firm is not assuming any gross negligence payment for BP, and the single biggest reason for that level of confidence is that the presidential commission report on the oil spill concluded that the broader safety culture within the industry and among regulators was essentially at fault. "The root causes are systemic and absent significant reform in industry practices and government policies, might well reoccur," the report said.

    "Had they wanted to blame BP exclusively they could have done so, and they didn't. That's a political conclusion, not a legal one. But if I were a BP attorney I would just quote that sentence in any legal setting and it should be a powerful argument," Molchanov concluded.

    "Gross negligence seems unlikely, especially given problems with the blowout preventer and the government having given approval for some of the things that happened. The likelihood of gross negligence is negligible," Argus Research's Weiss added.

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