As Crisis Fades, Investors Flock to BP
What has happened? For starters, the rally is partially a "relief rally" as the crisis, to the extent possible, has been resolved. The UK-based firm "killed" the Gulf leak permanently on September 19. There is evidence that the spill has begun to dissipate and will not do the damage that some environmentalists expected. BP has created a $20 billion escrow fund meant to cover clean-up costs, damages, and liabilities from the disaster and is compensating victims.
Also, the firm has been able to sell assets to strengthen its balance sheet. In one transaction, it sold some of its Prudhoe Bay operations to Apache (APA) for $7 billion. BP has also been able to sell $3.5 billion in bonds. It has a new CEO in Bob Dudley, who so far, seems to be making some solid moves.
As analyst Guy LeBas of Janney Montgomery Scott Securities told Bloomberg, the pessimism over the catastrophe has begun to recede.
Now investors are back to focusing on BP's tremendous earning power. In 2009, the company had $239 billion in revenue and an operating profit of $14 billion. Once the costs of the Gulf leak are backed out, those results are not expected to drop significantly.
The worst of the crisis is behind BP. And, surprising many, the company still has appeal for investors as a cash-flow and profit machine with fairly decent future prospects.