Vultures Circling Over Gulf Oil Disaster Hit BP Ahead of Relief Wells News

Companies / Oil Companies Jul 14, 2010 - 03:30 AM GMT

Exxon, Petro China and other vultures are circling over the crippled oil giant BP now that it is within reach of 'hopefully' plugging the Gulf oil gusher though still facing perhaps as much as $100 billion in litigation.

Exxon has asked the Obama administration if they can have a shot at taking over BP, which highlights how the situation has become highly politicised as the place to ask whether to take over BP should be at the London Stock Exchange i.e. the stock holders.

BP has yet to confirm if its latest cap has been successful, they probably fear that the pressure is too great so don't won't to risk making the situation worse by causing the well casing to disintegrate, at best they are hoping the latest cap will reduce the rate of flow leak as an interim solution ahead of the relief wells which are just days away.

BP Debt is starting to recover but still trading at distressed levels due to the open ended litigation for compensation claims that range anywhere between $30 to $100 billion.

The BP stock price has started to pull itself off of the floor, whilst it may revisit the floor several more times in response to U.S. political and legal sanctions, the long-term trend barring takeovers and breakups remains hugely positive.

Potential Dangers remain - The Armageddon Scenario of What If Relief Wells Fail to Stop the Blowout ?

Well that would be terminal for BP as the gusher would keep blowing until enough of the oil and gas has escaped resulting in an decrease in the pressure to enable the well to be capped. How long ? 1 year ? 2 years ? 3years? its anyone's guess. But one things for sure it would be terminal for BP as BP would be bankrupt as liability costs would soar to far beyond $100 billion whilst BP would be forced to keep drilling new relief wells in an attempt at eventually plugging the hole, which even if it were to succeed say 6 months from now, it would be far too late to save BP.

My view - On the basis that the relief wells will succeed, the gulf oil gulf disaster can be seen as a short term crisis, long-term BP remains a huge gash generator even if it has to pay up as much as a $100 billion in costs, it would still represent good long-term value as oil prices trend ever higher towards and past $200 a barrel, so no wonder the vultures are circling to bid for large chunks of the company, though don't expect formal action this side of the relief wells.

Bottom Line - The Deepwater drilling gulf oil crisis shows that Oil price in the long-run is only headed in one direction, UP. Investors should continue to align portfolios to benefit from this inflationary mega-trend see Ebook (FREE DOWNLOAD).

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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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