BP is one of the corporate giants of the petrochemical world, but just 18 months ago, an accident in the Gulf of Mexico had some convinced that it was headed for bankruptcy or take-over.
On 20th April 2010, an explosion on the rig left 11 workers dead and started one of the worst incidents of environmental pollution in history. According to Bloomberg, the cost to BP arising from the spill passed the $8 billion mark by September 2010. Ratings agency Moody’s has stated that the full cost of the disaster to BP will not emerge for several years, as legal processes unfold. They estimate that the final cost to the oil giant may be up to $60 billion in the long run.
BP caught the worst of the political and environmental fallout from the accident despite the fact that they were not the only company involved. President Obama had a major environmental crisis on his hands and a major UK-based corporation available to take the rap for it: even Barack wouldn’t claim that blaming anybody else was a change you could believe in.
Before the crisis, BP stocks stood at $57.25; at the heart of the crisis, this had collapsed to a value of $26.27. Eighteen months on from the disaster, the share value has recovered to $43.68. The value of the shares was boosted last week with the company being granted permission to resume drilling in the Gulf of Mexico.
At the time of the accident, the price of a barrel of Brent crude was a little over $87; currently, it costs about $110 (the rise has much to do with tensions associated with the Arab spring). This has helped BP to post 3rd quarter profits of $5.1 billion. The price of oil has been robust (because of political tensions) despite a sluggish global economy. One thing is certain and that is demand for oil will rise when the global economy picks up again. As a result of the Gulf of Mexico disaster, BP shares still probably represent good value when compared to other oil company stocks.