Tuesday, January 04, 2011

BP -- Big Producer of Black Gold

The hysteria of the Gulf Oil Spill has passed and oil is trading at more than $90 a barrel. That's good news for BP, but oil prices are impinging on drivers and others who are now paying more for refined petroleum products. Obama, with his moratorium on Gulf well-drilling, did his best to push oil prices higher. However, in a moment of clarity, he removed the drilling ban on some Gulf drilling. Of course if he were truly thinking of ways to stimulate the US economy he would remove all limits on domestic oil drilling and end all mileage requirements on US-made vehicles.

But Obama is a job killer, so empowering business leaders to decide how to build their businesses is out of the question -- unless the business involves sunshine, wind or batteries. Then the government tries to help. However, the word from consumers will arrive soon. They won't spend $40,000 for electric cars that travel only 40 miles on a single charge of the battery. And they do not want to pay more for electricity because it was made from sunlight.

BP is back. The stock price is up and will surpass its levels of last spring before the well catastrophe. This year the company will resume payments of dividends and hopefully it will find a way to extract oil from places that have been off-limits to oil drillers since the environmental nuts have been driving our energy policies.

BP shares hit 6-month high after Shell bid report

January 4, 2011

LONDON (Reuters) - Shares in oil major BP hit a six-month high on Tuesday after The Daily Mail newspaper reported rival Royal Dutch Shell had considered a takeover bid during the Gulf of Mexico oil spill.

BP shares were up 5.0 percent to 488.85 pence at 1000 GMT (5 a.m. ET).

The paper, citing sources close to the Anglo-Dutch group, reported Shell weighed an opportunistic bid for BP as crude gushed into the Gulf, but was discouraged by the potentially uncapped legal liabilities.

The newspaper said Shell could yet bid for BP if another suitor emerged but Europe's largest oil company by market value was unlikely to be the "first mover."

Mic Mills, head of electronic trading at ETX Capital said BP was also being boosted by comments late on December 31 from the lawyer running BP's gulf spill oil compensation fund that suggested damages payments could be half the expected level.

Ken Feinberg told Bloomberg Television about half the $20 billion fund set up by BP should be adequate to cover claims for economic losses.

One dealer said the news reports focused minds on the fact BP shares were cheap compared to rivals. "BP remains cheap and vulnerable at these levels but I do not think a bid is likely."

BP shares trade on a price-earnings ratio of 6.5 times, consensus 2011 earnings, while Shell trades at 8.9 times, partly reflecting the fact BP's actual earnings could be far lower if it was found to have been grossly negligent in causing the oil spill which would boost legal costs and fines.

However, Feinberg's comment highlighted how the picture could also be brighter than the company has predicted.

Analysts and industry sources said during the crisis last summer it was likely that both U.S. oil giant Exxon Mobil and Shell -- the only companies considered large enough to mount a bid -- would run the slide-rule over BP.

However, the two notoriously conservative companies were seen as likely to be discouraged by the open-ended nature of BP's liabilities.

Now BP's shares have rebounded 65 percent from their June low at 296 pence, to give BP a market value of around $140 billion, a bid would be much harder to mount, especially for Shell which is worth over $210 billion.

Exxon has a market value of almost $370 billion.

It is uncertain whether regulators on either side of the Atlantic would support a tie-up in top tier of the industry.

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