NEW YORK - An article at Forbes.com last week analyzed the future of BP, exploring the merits of purchasing the company's stock as well speculating whether the company could be headed for bankruptcy.
The article noted that with BP shares down 45 percent over the past month, investors with "guts of steel" might find the timing right to invest in the company, citing the company's history as one of the world's most profitable companies, one that pays $10 billion a year in dividends (thought it acknowledged that this could be curtailed sharply to pay for oil spill damages).
According to Daniel Pickering, head of research at energy investment bank Tudor, Pickering, Holt & Co., while he doesn't make BP a stock call, he believes politicians will recognize BP "is worth more alive than dead," and that the company will likely survive. However, he cautioned that "this better happen fairly soon ?" or the stock and debt markets will take over."
Pickering went on to cite factors that could lead to the company's demise, predicting that with "tons of cash" and a $20 billion capital spending program, it is unlikely the company will run out of money. However, he said bankruptcy could occur in two situations:
- Liquidity crisis: Pickering said this still seems unlikely, as the company has cash and spending flexibility to meet short-term obligations "even if there is a 'run on the bank.'"
- BP "handing over the keys": Pickering said that BP could sever its North American assets ?" BP Holding North America ?" to prevent the entire company from going under. He said this would sacrifice $50 billion of assets, which "would have to be better than seeing your remaining $909 billion of market cap go to zero." Pickering said such a scenario would involve a number of legal challenges and would forever tarnish the company's image.