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From Bullet Proof to Being Punished

By Matt Badiali, editor, S&A Resource Report
Thursday, January 11, 2007

If British Petroleum’s higher management claims ignorance regarding maintenance schedules and procedures, then they are ineffective and need to be replaced. If they were trying to squeeze a few extra bucks by skimping on maintenance, then they are criminally greedy.
 
At this point, I don’t want to own BP stock. They failed financially and show no remorse. At some point BP will go from ‘Bullet Proof’ to ‘Being Punished.’
 
When I wrote those words on August 8, British Petroleum shares closed at $70.14.
 
Yesterday, BP hit a new low, closing at $62.44. That’s a fall of almost 11%, which is remarkable considering BP’s peers Chevron and ExxonMobil are both up almost 5% over the past four months.
 
The falling share price doesn’t surprise me. In the past few years, British Petroleum has had more leadership problems than the Republicans.
 
First, there was the refinery explosion in March 2005, which killed 15 people and injured 500. BP denied any fault, but paid a $21 million fine and more than $1 billion to settle lawsuits from the accident. OSHA had BP on a watch list and described BP as a “willful” violator of safety rules.
 
Then there was the Prudhoe Bay pipeline leak that spilled 270,000 gallons of crude oil onto the Alaskan tundra. BP faces criminal charges from that one.
 
Oh, yeah, then there’s the recent price-fixing scandal. BP fired three propane traders after the company was accused of manipulating the price of propane. The traders tried to make $20 million by controlling propane in a single pipeline running from Texas to the Midwest and Northeast.
 
We all know that with major oil companies, bad things will happen.
 
On March 24, 1989, the Exxon Valdez spilled 11 million gallons of crude oil into the pristine Prince William Sound. Over the next two weeks, Exxon’s share price fell 6%. Exxon became the most popular punchline on late-night TV, and environmental groups filled the editorial sections with scathing indictments of Big Oil.
 
Exxon marshaled its advertising teams. By the end of 1989, shares were up 10% from their pre-spill price... by the third anniversary of the spill, Exxon’s share price had gained 24% from its pre-spill price.
 
That’s because Exxon did two things right. Management changed its image through a media blitz, which it then carried over into its corporate culture. It focused on being a hard-nosed, research-driven oil company, and success followed. That the company hasn’t had any major problems since the Valdez tells me it’s focused on safety and preventive maintenance.
 
While investors can forgive one mistake, like the Valdez incident, each new BP bungle has brought the company back into the public eye in a negative light. You could make a case that the Valdez spill wasn’t the result of Exxon’s neglect... you can’t make that case for any of BP’s recent problems.
 
BP must know by now that it can run all the “green” commercials it wants. However, if the company isn’t going to manage its assets properly, it’ll just look cheap and dirty. That’s why I won’t be buying BP shares anytime soon.
 
There are plenty of Big Oil companies out there that make better long-term investments than BP... like the one I detailed last month.
 
Good investing,
 
Matt Badiali




Market Notes
Supermajor British Petroleum hits a new low on sliding oil prices.
 
Media conglomerates Time Warner and News Corp. at new highs.
 
Money continues to flow into tech stocks... Apple and Sun Microsystems hit new highs.
 
In The News: House to raise minimum wage to $7.25.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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