Question
What do you think is going to happen to BP next..should one invest? Can the company go under?Answer
I’m sure arguments and court cases will rattle on for a few years before the total compensation bill for the oil spill is known. BP may not be liable for all of this if other parties involved (e.g. sub-contractors) are also held liable, but it’s fairly safe to assume it will end up paying a significant sum.
It’s too soon to guesstimate the impact of the oil spill on BP’s finances, but I think it’s highly unlikely BP will go under given it routinely posts pre-tax profits of around US$20-30 billion a year and holds about US$8 billion in cash. Perhaps at worst case BP might have to sacrifice profits (hence dividends) for a while, but unless the oil price plunges it seems plausible that BP should be able to shrug off the impact of this crisis within a few years, if not sooner.
Is now a good time to buy BP shares? Very difficult to say. Whether the shares are good value or not depends primarily on how much compensation BP ends up having to pay, which, of course, no-one knows. So buying BP shares now is a pretty big gamble. While I doubt you’ll lose your shirt, share price volatility could give you quite a few restless nights.
I suppose there is a moral and financial issue arising from this. As oil becomes progressively more difficult and dangerous to extract, you'd expect the likelihood of more catastrophic oil spills to increase - meaning more risk for both investors and the environment.
What do you think is going to happen to BP next..should one invest? Can the company go under?Answer
I’m sure arguments and court cases will rattle on for a few years before the total compensation bill for the oil spill is known. BP may not be liable for all of this if other parties involved (e.g. sub-contractors) are also held liable, but it’s fairly safe to assume it will end up paying a significant sum.
It’s too soon to guesstimate the impact of the oil spill on BP’s finances, but I think it’s highly unlikely BP will go under given it routinely posts pre-tax profits of around US$20-30 billion a year and holds about US$8 billion in cash. Perhaps at worst case BP might have to sacrifice profits (hence dividends) for a while, but unless the oil price plunges it seems plausible that BP should be able to shrug off the impact of this crisis within a few years, if not sooner.
Is now a good time to buy BP shares? Very difficult to say. Whether the shares are good value or not depends primarily on how much compensation BP ends up having to pay, which, of course, no-one knows. So buying BP shares now is a pretty big gamble. While I doubt you’ll lose your shirt, share price volatility could give you quite a few restless nights.
I suppose there is a moral and financial issue arising from this. As oil becomes progressively more difficult and dangerous to extract, you'd expect the likelihood of more catastrophic oil spills to increase - meaning more risk for both investors and the environment.
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