The Dead Zone (or, BP and the Oil Well That Keeps on Giving)

[Ser Clegane]

They don't need to cut the dividend in order to exact a punishment on BP, since BP doesn't get hurt by dividends anyway, and shareholders who would benefit from dividends already experienced a over 40% loss on their stocks. There is no need to punish pensioners of both British and Americans nations on-top and contribute to the governments of both nations deficiet, as the government will have to get the money from elsewhere to account for it.

So in reality, do you actually want to pay money instead of BP actually paying it? Tell me, I want to know. Do you want a larger deficit, bigger budget, for a cheap shot which only punishes the tax-payers more?



There are other ways to pay, just simply cutting the dividend payout means we get getting nothing from it, and end up just experiencing budget crisis elsewhere. You should extract additional payment or longterm deals for BP to deal with the mess.

I actually believe that cutting the dividend is not meant as "punishment" for BP (this would indeed be silly), but as a means to pay for the damage. Instead of distributing profits among shareholders these profits should be used to pay for the damage - sounds fair to me.
This is certainly not about BP cutting the dividend instead of paying for the damage - this would not make any sense (and I am not sure what makes you think that this would be an option)

[Beskar]

I actually believe that cutting the dividend is not meant as "punishment" for BP (this would indeed be silly), but as a means to pay for the damage. Instead of distributing profits among shareholders these profits should be used to pay for the damage - sounds fair to me.
This is certainly not about BP cutting the dividend instead of paying for the damage - this would not make any sense (and I am not sure what makes you think that this would be an option)

Most of the cutting dividend talk was simply that, to cut it. Which is obviously stupid and only hurts the taxpayers and investment into projects such as pensions.

Now, redistributing the dividend is another thing.

[Ser Clegane]

Most of the cutting dividend talk was simply that, to cut it. Which is obviously stupid and only hurts the taxpayers and investment into projects such as pensions.

Now, redistributing the dividend is another thing.

Actually it was pretty clear that the purpose of cutting the dividend would be to set aside cash to pay for the damage. This is mentioned in pretty much every news report on the topc.

Just one randon example

BP directors will meet on Monday to discuss whether to suspend dividends to shareholders, the BBC has learned.

Executives will then meet US President Barack Obama on Wednesday, but no announcement on the payments is expected in the near future.

BP has been under intense pressure from the US government, which wants BP to use the money to pay for the Gulf of Mexico clean-up.

[drone]

Most of the cutting dividend talk was simply that, to cut it. Which is obviously stupid and only hurts the taxpayers and investment into projects such as pensions.

Now, redistributing the dividend is another thing.

Corporate profit can be spent in two ways, corporate reinvestment or dividends. Lower the profit, and one or both of these two get reduced. The cost of the cleanup and potential lawsuits will lower the company's profit. From a political standpoint, BP will need to upgrade equipment and procedures to comply (or at least appear to comply) with regulations. The amount of money available for dividend payouts will therefore be reduced.

And BP shareholders have not had 40% losses on their stocks. If a shareholder held 100 shares of BP stock before the leak, they still hold 100 shares of BP stock. They only lost money if they sold their shares, in which case they are no longer shareholders and are just idiots.

[Vladimir]

And BP shareholders have not had 40% losses on their stocks. If a shareholder held 100 shares of BP stock before the leak, they still hold 100 shares of BP stock. They only lost money if they sold their shares, in which case they are no longer shareholders and are just idiots.

So...Time to buy then?

[Banquo's Ghost]

So...Time to buy then?

Yes, for the longer term, most certainly. Not if you're a skittish market player.

BP is an excellent company with good infrastructure and reserves but a short term problem. At the very worst, it will soon be the subject of a bid from the Chinese. Either way, there's a very good argument for buying now or soon at the bottom of the graph.

President Obama is going to make me some people even richer with his aggressive rhetoric directed at the American Oil Company-British Petroleum.

[drone]

So...Time to buy then?

Indeed. As a whole, BP prints money and should recover from this fairly easily. 2010 Q1 profits were $6 billion. There are 2 items of concern. One, will they take a public relations hit that hurts them through boycotts? Exxon shrugged off Valdez, but the Gulf is more tangible to the general US population. I foresee another name change/rebranding in their future. Two, will they restructure/split to isolate the cleanup and litigation costs?

[Louis VI the Fat]

The hottest investment strategy of the last few years has been: Buy Companies You Hate. That is, get BP while you can!


Dilbert Scott ran a very entertaining column about it in the WSJ last week, pretty much summing the mechanism up. Required reading for anybody holding any stock: http://online.wsj.com/article/SB1000...265955016.html



It is not new. It is the curse of capitalism - the incentives are to behave badly. BP has been acting perfectly rational. Unfortunately, acting rationally in the oil market means ruining the world.

[Crazed Rabbit]

The hottest investment strategy of the last few years has been: Buy Companies You Hate. That is, get BP while you can!

Dilbert Scott ran a very entertaining column about it in the WSJ last week, pretty much summing the mechanism up. Required reading for anybody holding any stock: http://online.wsj.com/article/SB1000...265955016.html

It is not new. It is the curse of capitalism - the incentives are to behave badly. BP has been acting perfectly rational. Unfortunately, acting rationally in the oil market means ruining the world.

There are incentives to play for keeps and increase profit. That's often not appreciated by consumers.

Look at Activision. They increased the price of PC games from $50 to $60 because they could. They charge $15 for map bundles for COD:MW2. And they make money.

Now, in terms of oil drilling having the potential for environmental damage, we need to make sure that oil companies will pay for the cleanup and damages. If they can't, hold the executives personally liable, which ought to balance risk and reward properly.

From the little I've read about the rig in the days before it exploded, BP did not consider an explosion a real possibility while justifying going against contractor recommendations for safety equipment. I don't think they were looking rationally at the danger. I consider as well the fact that BP has a history of deadly accidents at their refineries in the US in the past few years. Company wide, they don't seem to properly evaluate risk and weigh safety too lightly against costs.

Oh, and it's Adam Scott, the cartoon is Dilbert.

Let's talk about morality. Can you justify owning stock in companies that are treating the Earth like a prison pillow with a crayon face? Of course you can, but it takes some mental gymnastics. I'm here to help.

If you buy stock in a despicable company, it means some of the previous owners of that company sold it to you. If the stock then rises more than the market average, you successfully screwed the previous owners of the hated company. That's exactly like justice, only better because you made a profit. Then you can sell your stocks for a gain and donate all of your earnings to good causes, such as education for your own kids.

CR

[Husar]

Look at EA. They increased the price of PC games from $50 to $60 because they could. They charge $15 for map bundles for COD:MW2. And they make money.

I hate to ruin your well-informed opinion but that wasn't just EA and CoD:MW2 is from Activision who actually seem to charge more for their games than EA do. EA games are mostly 45-50€ here while CoD games are 60 (yes, €, not $!) at release.

[Seamus Fermanagh]

I hate to ruin your well-informed opinion but that wasn't just EA and CoD:MW2 is from Activision who actually seem to charge more for their games than EA do. EA games are mostly 45-50€ here while CoD games are 60 (yes, €, not $!) at release.

CR is quoting a typical, pre-tax, USD price. You are quoting a post-VAT EUE price, yes? What's the pre-tax equivalent?

[Crazed Rabbit]

I hate to ruin your well-informed opinion but that wasn't just EA and CoD:MW2 is from Activision who actually seem to charge more for their games than EA do. EA games are mostly 45-50 [euros]; here while CoD games are 60 (yes, [euros];, not $!) at release.

Whoops. I got the two game conglomerates we're supposed to hate confused. Well, just insert Activision for EA.

And in the US, video games on the PC have been $50 for normal edition copies at release forever. Only console games have been priced normally at $60 traditionally.

CR

[Tellos Athenaios]

@Seamus: 19% VAT over here (Netherlands) for most products, but of course 1 € is not 1 $... I don't think those prices[*] actually work like that, though: as I see it, it is more of a perception of price. A company simply creates the perception to charge 50 units of a given currency, or 60 units or whatever the price point they want taking into account the local custom of pricing products (with or without VAT). Hence why currency fluctuations seem to have no bearing on actual market price of these things.
[*] Prices of games, DVD's and such like.

[drone]

No dividends for the rest of the year, $20 billion to be set aside over the next 4 years into escrow to handle the cleanup/recovery costs.
http://money.cnn.com/2010/06/16/news...pt=T1&iref=BN1

[Lemur]

Oh, and it's Adam Scott, the cartoon is Dilbert.

And between the day he announced he was buying BP stock and today it has lost at least 40% of its value, so I think mebbe Dilbert's daddy got pwned. Timing is everything.

[Husar]

CR is quoting a typical, pre-tax, USD price. You are quoting a post-VAT EUE price, yes? What's the pre-tax equivalent?

It's including 19%VAT, but the point was that Activision still charges more than most others, including EA.

[Crazed Rabbit]

And between the day he announced he was buying BP stock and today it has lost at least 40% of its value, so I think mebbe Dilbert's daddy got pwned. Timing is everything.

If he sells now.

Also, from drone's link, the stock lost 45% of its value over the last year, and rose 1.4% after the dividend was cut.

Another interesting thing is the lack of a legal basis for forcing BP to start an escrow account for payouts. Of course, skirting and at times outright defying the rule of law has happened before under this administration in regards to company's finances.

CR

[Azathoth]

Only console games have been priced normally at $60 traditionally.

For the current generation of consoles. Before 2005 or 2006 new games used to be $50.

[Louis VI the Fat]

And between the day he announced he was buying BP stock and today it has lost at least 40% of its value, so I think mebbe Dilbert's daddy got pwned. Timing is everything.

Timing is everything. Earlier today would've been a great time to buy BP.


Capitalism rewards moral bankruptcy.

The reputation of a company - it's moral standing with the public at large - roughly correlates negatively with how well its stock performs.
http://www.slate.com/id/2131777

In psychology, game theory, it turns out a majority of people is willing to incur personal loss just to punish cheaters, that is those who seek a profit at the expense of others. Companies that are perceived to do this, have a low reputation. However, in many a capitalist market, the incentives are to gain a profit at others expense.
Being hated is thus a good indicator of future succes.


Sad.

With a few corrections, many markets could be re-organised to other incentives, which take general interest instead of private interest into account. Unfortunately, this is a taboo in neo-liberalism, which holds that markets must be organised to suit immediate private interest, instead of long-term, sustainable, general interest.

Instead of re-organising our markets to operate to our advantage (including those of companies), we'll vote ourselves into worker ants, operating in an unsafe, unhealthy, dangerous, instable society. One would think we'd had enough by now of a new crisis every three months: resource, food, financial, environmental, monetary, etc etc.


Free market is a deceptive term. It is commonly used to mean little government intervention. This is not the case, never. The Congo has a free market, without government intervention. Western markets, by contrast, are organised by governments. As witness for example BP in the Gulf. There is no such thing as a 'free market' in this case. There is a government that grants concessions, decides who gets to drill, safeguards property, does this in a certain fashion (safeguards private, tangible property over intangible, public, environmental property), decides on saftey regulation, decides the mode of risk management (litigation instead of social risk) , etc.

I for one am of the opinion that BP operated quite rationally within this market. Risks had to be taken. Once disater struck, rational policy is to prevent as little immediate private financial loss as possible, even at the expense of long-term, public, intangible loss (health, environment etc). Such are simply the incentives set by the market BP operates in.

[Fragony]

It's including 19%VAT, but the point was that Activision still charges more than most others, including EA.

EA ain't so bad, good quality control.

And BP are idiots we can clean things up for ya and it won't cost 20 billions http://www.rnw.nl/english/article/du...s-oil-disaster

[ajaxfetish]

Oh, and it's Adam Scott, the cartoon is Dilbert.

I hate to invalidate your smily, but it's actually Scott Adams.

Ajax

[Crazed Rabbit]

I hate to invalidate your smily, but it's actually Scott Adams.

Ajax

Hoist on my own petard.

CR

[Vladimir]

How do you apologize for an apology? So much for Republican "leadership."

[PanzerJaeger]

Leadership? A bit, though not ringingly. Effective Politics? Yeah, probably....I just wish he was working towards an end-state I preferred.

Eh, the pundits seem to agree with my position, essentially that the speech sucked. Noonan has the best wrapup I've seen of the disaster it was so far.

It isn't Mr. Obama's fault that an oil rig blew in the Gulf and a gusher resulted. He already had two wars and the great recession. But the lack of adequate federal government response appropriately redounds on him. In a Wall Street Journal investigation published Thursday, reporters Jeffrey Ball and Jonathan Weisman wrote the federal government at first moved quickly, but soon "faltered." "The federal government, which under the law is in charge of fighting large spills, had to make things up as it went along." It hadn't anticipated a spill this big. The first weekend in May, when water was rough, contractors hired by BP to lay boom "mostly stayed ashore," according to a local official. "Shrimpers took matters into their own hands, laying 18,000 feet of boom," compared to about 4,000 feet by BP's contractors.

The administration's failure to take impressive action after the spill dinged its reputation for competence. The president's failure to turn things around Tuesday night with a speech damaged his reputation as a man whose rhetorical powers are such that he can turn things around with a speech. He lessened his own mystique. Reaction among his usual supporters was, in the words of Time's Mark Halperin, "fierce, unforeseen disappointment." Dan Froomkin of the Huffington Post called the speech "profoundly underwhelming," a "feeble call to action." Former Clinton Labor Secretary Robert Reich called the speech "vapid." Lynn Sweet of the Chicago Sun-Times said the president looked "awkward and robotic." MSNBC's Keith Olbermann famously said "It was a great speech if you were on another planet for the last 57 days." Chris Matthews scored "a lot of meritocracy, a lot of blue ribbon talk." Mr. Olbermann, on Mr. Obama's well-written peroration: "It's nice but, again, how? Where was the 'how' in this speech when the nation is crying out for 'how'?"

The right didn't like the speech either.

It, of course, is yet to be seen whether the public will see it from your perspective. He's at 45% on Gallup and 41% on Rasmussen, and the Senate has essentially said that there isn't the will to do much on energy "reform".

PS> Sorry for the obnoxious bolding, but it is hard to see links with this new skin.

[Beskar]

Obama called BP - British Petroluem, would be like me calling America - "British Colony".

[Justiciar]

That really is getting beyond tedium, Beskar. Several American citizens have lost their lives, thousands more have had their careers put on (quite likely perminant) hold, and the Gulf of Mexico has been reduced to a puddle of noxious gloop. Isn't that slightly more pressing than this largely imagined effrontery?

[Beskar]

I saw it on a tv show, I just reposted it. Thought it was funny.

[Incongruous]

That really is getting beyond tedium, Beskar. Several American citizens have lost their lives, thousands more have had their careers put on (quite likely perminant) hold, and the Gulf of Mexico has been reduced to a puddle of noxious gloop. Isn't that slightly more pressing than this largely imagined effrontery?

If it is damaging the diplomatic relationship between the two countries then no, it is not, oh and remember how many people American companies have killed over the past thirty years, moralising this issue is a no go.

[Philippus Flavius Homovallumus]

That really is getting beyond tedium, Beskar. Several American citizens have lost their lives, thousands more have had their careers put on (quite likely perminant) hold, and the Gulf of Mexico has been reduced to a puddle of noxious gloop. Isn't that slightly more pressing than this largely imagined effrontery?

Not if Obama is using same form of xenophobia to deflect responsibility. The company is 60/40% British/American.

In any case, your outrage is misplaced, all the American companies would have acted in exactly the same way, and the administration set the regs that allowed the well to be drilled, and the rig to not have remote kill.

So... Nuts to Obama.

[Crazed Rabbit]

Not if Obama is using same form of xenophobia to deflect responsibility. The company is 60/40% British/American.

In any case, your outrage is misplaced, all the American companies would have acted in exactly the same way, and the administration set the regs that allowed the well to be drilled, and the rig to not have remote kill.

So... Nuts to Obama.

No, they have not acted the same. It was BP, and their maintenance fund cuts, that led to 15 people dying at an explosion at the Texas City Refinery in 2005.

And it's BP, with their disregard for safety that's led to this.

They use the 'long string' pipe design, which is worse at handling natural gas blowouts, significantly more often than other big oil companies.

A Journal analysis of records provided by the U.S. Minerals Management Service shows that BP used the less costly design—called "long string"—on 35% of its deepwater wells since July 2003, the earliest date the well-design data were available. Anadarko Petroleum Corp., a minority partner of BP's in the destroyed well, used it on 42% of its deepwater Gulf wells, though it says it doesn't do so in wells of the type drilled by BP.

Both companies used the design much more often, on average, than other major Gulf drillers. Out of 218 deepwater wells in the Gulf drilled since July 2003, 26% used the long-string design. It derives its name from its use of a single, long "string" of pipe from the sea floor to the bottom of the well.

Other big drillers use long-string design less frequently than BP, according to the Journal's data analysis. Royal Dutch Shell PLC used long string designs on 8% of its wells and Chevron Corp. on 15%. Australian firm BHP Billiton PLC used long string on 4% of its wells.

Though I think they should have said no to the oil escrow fund and the demand to pay oil workers laid off because of Obama's decision.

Speaking of Obama, he hasn't suspended the protectionist Merchant Marine Act of 1920, or the Jones Act, a union handout that demands ships working in US waters be built and crewed by Americans. Which means other nations who've offered to help cannot.

He could suspend it, as Bush did during Katrina, but hasn't.

Obama called BP - British Petroluem, would be like me calling America - "British Colony".

Except America was never known simply as 'British colony', they haven't been a british colony for 230+ years (unlike BP changing a decade ago), and no one has called them "British colony" in hundreds of years.

CR