Friday, July 30, 2010

BP -- Strong Buy

Surprise, surprise, the oil that had been gushing into the Gulf of Mexico seems to have disappeared. According to the experts, a combination of human and natural forces have led to its near disappearance.

When the leak sprung, BP piped in special dispersant chemicals into the flow. Apparently they have worked as advertised. Second, the oil that rose to the surface of the Gulf was further dissolved by the combination of warm water and hot sun. After clean-up efforts got underway, a lot of oil was skimmed off the surface of the water. Meanwhile, the water currents in the Gulf have carried much of the oil out to the Atlantic Ocean.

Some oil reached shore areas. But able-bodied citizens were there and waiting, scooping up every blob that hit land.

Thus the question of damages needs a major revision. It looks like the immediate damage to the water and shore is close to ZERO. The harsh dispersant chemicals and the oil itself may have harmed or killed some sea life. But the new question is how long will it take for the effects of the chemicals to dissipate?

When can fishermen, crabbers and oystermen resume their work?

Hard to say. But, it's now clear the total cost of the clean-up and compensating the fishermen and resort owners will fall far below the figure of $20 billion concocted by hysterics claiming the oil leak was Doomsday for the Gulf.

What's ahead for BP?

The company will make good on its obligations to pay for the clean up and maintaining the income of the people hurt by the interruption to their livelihoods. After the company and the injured parties settle on a figure, the company will restart its dividend. It's important to remember that BP stock is the Widows and Orphans stock of Great Britain. A lot of people and mutual funds expect to collect hefty dividends from this stalwart organization.

When the dividend is reinstated, the stock will rise. If oil stays around its current price, the company will continue to enjoy enormous cash flow, which suggests the stock price will return to its pre-leak levels -- $60.

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