From Bullet Proof to Being Punished
By Matt Badiali
January 11, 2007
If British Petroleum’s higher management claims ignorance regarding maintenance schedules and procedures, then they are ineffective and need to be replaced. If they were trying to squeeze a few extra bucks by skimping on maintenance, then they are criminally greedy.
At this point, I don’t want to own BP stock. They failed financially and show no remorse. At some point BP will go from ‘Bullet Proof’ to ‘Being Punished.’
When I wrote those words on August 8, British Petroleum shares closed at $70.14.
Yesterday, BP hit a new low, closing at $62.44. That’s a fall of almost 11%, which is remarkable considering BP’s peers Chevron and ExxonMobil are both up almost 5% over the past four months.
The falling share price doesn’t surprise me. In the past few years, British Petroleum has had more leadership problems than the Republicans.
First, there was the refinery explosion in March 2005, which killed 15 people and injured 500. BP denied any fault, but paid a $21 million fine and more than $1 billion to settle lawsuits from the accident. OSHA had BP on a watch list and described BP as a “willful” violator of safety rules.
Then there was the Prudhoe Bay pipeline leak that spilled 270,000 gallons of crude oil onto the Alaskan tundra. BP faces criminal charges from that one.
Oh, yeah, then there’s the recent price-fixing scandal. BP fired three propane traders after the company was accused of manipulating the price of propane. The traders tried to make $20 million by controlling propane in a single pipeline running from Texas to the Midwest and Northeast.
We all know that with major oil companies, bad things will happen.
On March 24, 1989, the Exxon Valdez spilled 11 million gallons of crude oil into the pristine Prince William Sound. Over the next two weeks, Exxon’s share price fell 6%. Exxon became the most popular punchline on late-night TV, and environmental groups filled the editorial sections with scathing indictments of Big Oil.
Exxon marshaled its advertising teams. By the end of 1989, shares were up 10% from their pre-spill price... by the third anniversary of the spill, Exxon’s share price had gained 24% from its pre-spill price.
That’s because Exxon did two things right. Management changed its image through a media blitz, which it then carried over into its corporate culture. It focused on being a hard-nosed, research-driven oil company, and success followed. That the company hasn’t had any major problems since the Valdez tells me it’s focused on safety and preventive maintenance.
While investors can forgive one mistake, like the Valdez incident, each new BP bungle has brought the company back into the public eye in a negative light. You could make a case that the Valdez spill wasn’t the result of Exxon’s neglect... you can’t make that case for any of BP’s recent problems.
BP must know by now that it can run all the “green” commercials it wants. However, if the company isn’t going to manage its assets properly, it’ll just look cheap and dirty. That’s why I won’t be buying BP shares anytime soon.
There are plenty of Big Oil companies out there that make better long-term investments than BP... like the one I detailed last month.
Good investing,
Matt Badiali
