September 7, 2014

BP Ruling a "Wakeup Call" for investors

A Bloomberg News article suggests that investors ought to view a judge's ruling yesterday as a "Wakeup Call" that deep water oil drilling is inherently risky. 

A U.S. judge's watershed ruling means the final cost to BP Plc for the 2010 Gulf oil spill may eclipse $50 billion, wiping out years of profits and highlighting the risks of drilling as the industry pushes into more dangerous areas such as deeper waters and ice-bound Arctic fields.
Yesterday's court decision that BP acted with gross negligence in the Gulf of Mexico disaster may hamstring the company financially as the industry's search for resources becomes more expensive and dangerous. Companies including Exxon Mobil Corp. and Royal Dutch Shell Plc are also facing increasing pressure to show investors they can still grow as production declines.
"The decision also casts a cloud over BP's future. Its reputation has already been sullied and important holdings in Russia are at risk because of tensions in Ukraine. In addition to the $28 billion in claim payments and cleanup costs it has paid, BP has been forced to divest itself of more than 10 percent of its oil and gas reserves, along with valuable pipelines and refining facilities to pay claims and increase its profitability. BP shares fell by nearly 6 percent Thursday, closing at $44.89."
If BP is being forced to divest to maintain profitability, perhaps investors should be considering divesting themselves.
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