TM) and even Goldman Sachs ( GS). The public just doesn't matter much in the pollution business, which to be quite frank, is the business of BP. And the recent quarter report proves this. It might also prove just how good a value BP shares, and many of the other integrated oil companies still to report this week, may still be. It was clear that Tony Hayward wasn't going to survive the year-end as the BP CEO -- he had made too many mistakes in the handling of the Gulf oil spill. But it is wrong to assume that the change was made in an effort to shore up their public relations. BP has shown few tangible effects from a public perception as bad as any ever seen in the corporate world. Indeed, their second-quarter report showed an increase in revenues, from an estimated consensus of $72.6 billion to a reported $75.9 billion, a monumental and ignored $3 billion beat. BP decided to take their $20 billion dollar liability fund commitment immediately this quarter, despite it being a four-year obligation with a high probability of over-funding. This contributed to a $32.2 billion writedown and a $17 billion loss. A cursory analysis makes this look like a terrible result, but it is, under closer scrutiny, rather surprisingly good, and none of the losses are attributable to consumer distaste for the brand. In the oil business, you can have the worst environmental disaster in history -- and be connected to the Lockerbie bomber in one quarter -- and still make far more money than you expect. That's the bottom line in a business that has very little direct contact with consumers who care and spend money based on a manufacturer's reputation.
There are two very actionable takeaways from this valuable insight. The first is that we can try to analyze BP in the cold clear light of figures and discount the public's perception of the brand. And in the light of those figures, BP seems to be doing everything it needs to do to survive this spill and return to being a very, very profitable company indeed. They have begun their process of selling $30 billion of assets (including a recent $7 billion sale of Prudhoe Bay assets to Apache) to assure that they will have the cash to withstand any possible liability claims and fines. They have taken the full hit from many of those liabilities in one quarter, without diluting their shares or creating a short-term bond issue with an onerous coupon. Mud will begin to go down the relief well on August 2 -- a few weeks ahead of schedule with cement kill a week or so behind that. Skimmers have stopped working on the Gulf as there is very little oil left on the surface while much under the surface is apparently being eaten more quickly than most expected. The discount in BP shares caused by the "bad" earnings report is an opportunity to buy, it seems to me. The second, perhaps more important takeaway is in the rest of the integrated stocks yet to report this week. With the BP revenue "beat" being lost in the sauce of writedowns, it bodes well for favorable reports later in the week from ConocoPhillips ( COP), Chevron ( CVX) and my particular favorite, Exxon ( XOM). I think all three will report equally well and beat revenue expectations. With Exxon in particular, its $60 share price still represents a great opportunity for a long term investment hold. And no matter what big integrated oil company you own, you need not worry much about the public's perception affecting their ability to make fantastic profits. BP or any of the other big integrated oil companies just aren't like Toyota and other consumer-driven companies. Sometimes, the public's hatred of one of these will make for a fantastic opportunity -- like right now. At the time of publication, Dan Dicker owned BP and XOM.
Readers Also Like: