BP's disastrous, but profitable, quarter
By Steve Hargreaves, Senior writerJuly 25, 2010: 6:32 PM ET
NEW YORK (CNNMoney.com) -- BP is set to report its second-quarter financial results on Tuesday, and by anyone's measure it's been a bruising period for the company.
So just what will investors be looking for?
To start, the headline numbers will actually look pretty good.
Analysts expect the company to announce that it made $1.39 a share, up 48% from 94 cents a share in the same period a year ago, according to Thompson Analytics.
The reason: Substantially higher oil and gasoline prices. Oil is up 50% from last year, and gas is up 34%.
Those forecasts do not include charges that BP took because of the Gulf spill. But those charges are not expected to cut too deeply into the company's earnings.
Pavel Molchanov, an analyst at Raymond James, is expecting BP to post an after-spill profit of $1.26 a share, or nearly $4 billion. That's just slightly less than the $4.5 billion it made in the same quarter last year. BP spent $2.8 billion in the second quarter on the spill, said Molchanov.
$4+ billion in cash generated in 1 quarter, oil prices up 50% from last year, no more oil spilling in the gulf with the well to be permanently capped, a low P/E of 5.8, and we have a stock that should trade in the low $40's this week.
Yes, the spill was an environmental and political disaster but not a financial one.
Let's not forget the increasing likelihood of shared liability:
Jul 23, 2010
3:00 PM BP Up as RIG Employee Says Fire Alarm Concern Ignored (Update)
Posted by Tiernan Ray
BP (BP) shares recovered from yesterday’s dip, rising 56 cents, or 1.6%, to $36.79, despite the fact that Tropical Storm Bonnie has entered the zone of the Macondo well explosion, forcing crews drilling two relief wells to suspend activity.
And from The Wall Street Journal’s Russell Gold comes the latest damning bit of evidence this afternoon concerning the events of April 20 — but not damning for BP so much as for the owner of the Deepwater Horizon rig, Transocean (RIG).
Turns out the fire alarm on the Deepwater Horizon was turned off, apparently because “rig managers ‘did not want people woken up at 3 a.m. with false alarms’,” according to testimony at a hearing in New Orleans today by a chief electrician onboard the rig at the time.
The electrician, Michael Williams, a Transocean employee, said the alarm would have detected a build-up of natural gas and notified rig workers to evacuate their drilling positions before the explosion hit.
Williams has filed suit against Transocean saying he tried to warn supervisors, and that the system was faulty when he joined the Deepwater last year.
Shares of RIG today are down $1.01, or 2%, at $45.66.
Update: Transocean this afternoon contacted me to object to the characterization of the situation, including how Williams’s points were characterized. Transocean’s response in its entirety is as follows:
The general alarm configuration on the Deepwater Horizon was intentional and conforms to accepted maritime practices, including those on some Navy and Coast Guard vessels. It was not a safety oversight or done as a matter of convenience.
The alarm system on every large maritime vessel, including the Deepwater Horizon, is zone based. The Deepwater Horizon had hundreds of individual fire and gas alarms, all of which were tested, in good condition, not bypassed and monitored from the bridge.
The general alarm is controlled by a person on the bridge and sounded from there, only when conditions require. This is an option on each individual vessel designed to prevent the general alarm from sounding unnecessarily when one of the hundreds of local alarms activates for what could be a minor issues or a non-emergency.
Repeated false alarms increase risk and decrease rig safety.
This is report is not a factual assessment of a high quarterly EPS. BP must recognize any reasonable costs to arise from the Gulf disaster now. It doesn't matter when they are paid but when the liability arose.The liabilities are a result of recent damages in the gulf during the subject accounting period They do not need to estimate esoteric costs that are questionable but must make a reasonable estimate of legitimate claims. For example if they believe they will be on the hook for 5 billion in lost fisherman income they must recognize it in this period even if they have only payed out 500k. Why? Stockholders and lenders rely on standardized accounting rules to evaluate the financial health of company beyond 90 days of business.
BP may get a huge bounce as many might reach the conclusion that BP will have bad numbers.
Between CEO Hayward leaving and the profit and guidance on Tuesday, shorts had better cover quickly.