Energy Winners: BP Outpaces Oil Sector
NEW YORK (
) --
BP
(BP) - Get Report
shares were the big winner among the integrated oil majors on Monday, gaining more than 3% in trading, albeit on average volume.
BP was the only company among the global oil majors with a gain above 1% on the first day of the week.
The price of crude oil continued to flirt with the $90 mark -- though it wasn't moving any higher on Monday -- and the energy sector's one-day gain was ahead of the broad market, which was more or less flat after a losing morning.
Oil sector companies have been reaching annual highs as the price of crude has climbed higher.
>>Will Obama Flip-Flop Sink Oil Stocks?
Last Friday, several oil sector companies, including
Halliburton
(HAL) - Get Report
,
Baker-Hughes
(BHI)
and
Schlumberger
(SLB) - Get Report
finished the week at annual high share prices.
Among BP's integrated oil peers,
Exxon Mobil
(XOM) - Get Report
and
ConocoPhillips
(COP) - Get Report
have gained 16% over the past three months. BP's three-month rise is just under the 15% mark.
The only news of note regarding BP was word last Friday from the presidential panel investigating the oil spill that BP contends the government overestimated the size of the oil spill by as much as 50%.
>>BP Trying to Reduce Oil Spill Bill
The fact that BP is challenging the government's oil spill estimate garnered headline play on Friday afternoon.
Congressional thorn-in-the-side of BP Rep. Edward Markey (D-Mass.) responded to BP's latest gambit with a statement lashing out at the oil company's new CEO Bob Dudley in a letter made public, and saying, "BP's new claim that the spill is much smaller than previously thought flies in the face of multiple lines of evidence, and raises questions whether this is a scientific finding, or a litigious position."
Markey has previously asked BP to accept the government's Flow Rate Technical Group estimate so final fines for BP under the Clean Water Act can be determined.
However, several environmental law experts tell
TheStreet
that BP lawyers wouldn't be doing their job if they accepted the government's first "offer" of a total oil spill flow to be used as the basis for Clean Water Act fines.
Given that the Technical Flow Rate Group of the government didn't exist before the BP oil spill, and in the early days of the oil spill the government estimates were way off the mark, it's not as if the government expertise in estimating the oil spill is a perfect science.
Regardless, pollution fine experts told
TheStreet
that while BP has to be conscious of the delicate public relations situation it remains in, fines under the Clean Water Act -- like any federal pollution fines -- usually end up being settled by the government and the opposing industry party. The first step is the opposing party letting the government know that it disagrees with the estimate.
"Most of these cases get settled. The government has reasons to be risk-averse and BP has reason to be risk-averse, and no one ever takes the first number thrown out by the EPA," Seth Jaffe, the coordinator of the environmental practice group at Foley Hoag said. "I wouldn't think BP thinks the PR damage could be so huge that they have to treat the government's first offer as a demand for payment," the environmental lawyer added.
As far as a legal matter, government experts may receive deference from courts, but an oil spill flow estimate isn't a "the light was clearly red" kind of fact for a court to rule on.
The difference between the government oil spill flow estimate and BP's claim that it could be anywhere from 20% to 50% overestimated is a matter of billions of dollars. BP generates annual profits in the range of $50 billion. BP has already taken a $32 billion charge for oil spill liabilities and the administrator of the $20 billion oil spill compensation fund is encouraging claimants to settle early to receive the best terms.
For the sake of argument, if BP is not found guilty of gross negligence and is subject to the $1,100 per barrel of oil fine -- it would be $4,300 per barrel in the case of gross negligence -- the total fine to be paid by BP based on the current oil spill estimate would be in the range of $5.5 billion.
The federal government has estimated that about 2.6 million gallons of oil a day spewed from the well, declining to about 2.2 million gallons daily before the well was capped in mid-July. The 2.6 million gallons per day works out to roughly 221 million gallons of oil during the three-month oil spill, or 5.2 million barrels of oil. The 5.2 million barrels of oil fined at the rate of $1,100 per gallon would result in a fine of nearly $6 billion.
If BP's claim that the government has overestimated the oil spill flow rate by as much as 50% is taken as a given, for the sake of argument, BP would be looking at a fine reduced to the range of $2.5 to $3 billion.
"This is very unlikely to go to court -- the parties will most likely settle," said Mark Cohen, vice president for research and senior fellow at non-profit environmental research firm Resources for the Future. "In the case of BP, they used the government penalties in lieu of natural resource damages to reduce drawn out litigation," said the environmental economist, who has extensively studied the Exxon Valdez disaster and its aftermath.
In the end, the looming argument over the oil spill flow estimate doesn't change the larger issue about total oil spill damages. "This is just one piece of the puzzle. What will be more important is whether victims have been paid and adequate restoration funds are available," the environmental economist said.
On Monday, Alabama Governor Bob Riley said President Obama needs to step back into the middle of the $20 billion BP oil spill compensation fund process. The Alabama Governor compared the fund's operating principle -- any settlement accepted by a claimant deprived a claimant of the right to sue BP -- as extortion.
Notably, the second-biggest gainer among oil stocks on Monday was
Anadarko Petroleum
(APC) - Get Report
, up roughly 2% in trading. Anadarko owned a 25% stake of the working interest in the BP Macondo well. Anadarko's oil spill liabilities remain a point of debate. Anadarko is sticking to its argument that BP was grossly negligent, but if the company were to take a charge against earnings at some point in relation to oil spill liabilities it would not be a huge surprise, either.
Anadarko shares reached their highest value since the oil spill on Monday. In fact, several key Anadarko insiders, including CFO Robert Gwin, sold significant insider stakes last week. The Anadarko CFO reduced his holding by almost 100%, according to insider sales tracking firm
Insiderscore.com
.
The insider sales tracking firm noted in its analysis of the Anadarko insider selling, "There was an increase in selling at APC back in March when the stock was around this level (i.e. $70.00) and this latest group of sales once again looks like a valuation call."
-- Written by Eric Rosenbaum from New York.
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