Tuesday, June 1, 2010

BP: The boycott that counts

Now that we know the top hat didn’t work, the top kill didn’t work and the junk shot didn’t work, it seems that the British energy giant BP has given up on pre-titling possible solutions to the Gulf of Mexico oil spill, the worst such disaster in U.S. history.

In the next proposed solution, rolled out in the Gulf this week, robots sawed off the so-called "lower marine riser package" on the well, before a custom-made cap is deployed and hopefully fitted over the wellhead. The objective is much the same as it ever was: overwhelm the immense pressure of oil coming out of the broken pipeline on the floor of the Mississippi Canyon with something that both covers the rupture and draws the churning fuel into the recovery vessels waiting above.

If this improv trick doesn’t work, we have to wait for the final alternative, the apparent silver bullet of BP relief wells now being built and scheduled for completion ... in August.

To say this is “torture” for the people of the Gulf states affected by this monumental screwup is a towering understatement. The fishermen and their families have battled to contain their emotions, their sorrow and righteous rage at the loss of their livelihoods and the world of their work, the waters of the Gulf of Mexico. It is, at the very least, a torture of the environment in the area, some of the unique and beautiful in the United States.

And there’s about to be at least a little torture for the brain trust at BP. The supermajor energy company is faced with a widening gyre of problems, and only some of them stem directly from the wellhead 5,000 feet below the oleaginous waters of the Gulf.

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There’s been talk about boycotting BP, with most of it assuming that boycotts, as we’ve come to know them through the years, don’t have a chance of succeeding. Pessimists routinely offer the giantism theory, saying essentially that because BP’s so big — too big to fail? — the actions of individual protesters wouldn’t make any difference.

But as the mood against BP deepens and grows, the company faces a combination of serious challenges to its bottom line, where it counts.

From a public relations standpoint, a populist boycott never looks good. When you’re a company that’s all about touting your role in the future of energy, it makes for bad TV exposure when everyday people are picketing at ARCO stations and am/pm convenience stores, or refusing to buy Castrol motor oil. The honchos at BP have probably taken some smug comfort in knowing that boycotts at that scale won’t put much of a dent in a company with about $240 billion in revenue last year.

But there are boycotts and there are boycotts.

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The boycott that BP really has to worry about is the one that’s underway at a completely different level — not a boycott of BP products, but a boycott of BP as a producer. We’re talking about the boycott that’s been happening since April 21, the first full day after the disaster. That’s roughly when BP’s stock price started its slow spiral downward, a process that’s still going on.

Dive, plunge, sink, tank, plummet, pick your own aquatic descriptor; every one of those five words was used appended to phrase “BP shares” everywhere online today. Between this morning when the market opened, and when it closed this afternoon, BP lost an estimated $20 billion in value. Shares closed today at $36.52, down another $6.43 each. Since the April 20 inferno, BP has lost just under $75 billion in shareholder value, CNN reported.

And that doesn’t even include the billions — with a B — in claims checks this corporation will be cutting to the wrongly impoverished people and industries of the affected region.

One reason for the BP drop: Attorney General Eric Holder was in New Orleans today to huddle with prosecutors and attorneys general from four of the affected states, to discuss possible investigations of BP for possible charges of obstruction of justice, environmental crimes and lapses in business practices leading up to the spill. “We will prosecute anyone who has violated the law,” Holder said today at a news conference.

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Dougie Youngson, oil analyst at Arbuthnot, told The Associated Press today: "This situation has now gone far beyond concerns of BP's chief executive Tony Hayward being fired, or shareholder dividend payouts being cut — it's got the real smell of death."



"Given the collapse in the share price and the potential for it to fall further, we expect that it could become a takeover target, particularly if its operating position in the U.S. becomes untenable," he added.

Shareholders are dumping BP stock, and we’re not talking individual shareholders, mom & pop buyers of odd lots of 10 or 20 shares at a time. We’re undoubtedly talking about the Gekko-level traders, the big institutional holders who move blocks of 10,000 and 20,000 shares at a pop. We’re talking about pension fund managers who’ve previously populated their funds with the shares of BP and other energy producers. Pension fund managers whose funds are derived from the investments of hundreds of thousands of working-class investors (some of whom are probably waving those signs at the ARCO down the street).

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Seventy-five billion dollars is a lot of money, even for a cash-liquid conglomerate like BP. And the risk-averse titans of Wall Street can’t really be expected to jump in now, even as a show of long-term faith in the company. The slogan about investing — “buy low, sell high” — only makes sense when you have some reasonable expectation of how low low is going to get.

For that reason, BP’s in a lot of trouble: It has no idea if this latest cap-the-well idea is going to work; and no one has anything more solid than theories and computer modeling to gauge the impact of the next big event in the Gulf's future: the 2010 hurricane season, which began today.

The National Oceanic and Atmospheric Administration has forecast a more active and unusually severe hurricane season; some have even grimly hinted at conditions rife for the likelihood of a storm season similar to 2005 — the year of Hurricane Katrina. “Don’t try to catch a falling knife,” goes the market’s other legendary dictum. BP’s predicament offers that slogan a tweakable moment: “Never try to catch a falling knife in a windstorm.”

Let’s hope for the Gulf’s sake this latest BP approach pays off; another 60 to 70 days of this, with a hurricane or two thrown in, may shatter the region’s prevailing industry and its ecosystem for decades. And it’s already doing the same to BP, courtesy of the boycott launched by the people who matter. The ones who dumped BP shares whose value dropped $20 billion in one day ... $75 billion in 43 days.

Somebody’s boycotting BP, all right; it may not be me or you walking the parking lot with a sign scrawled in fat Magic Marker. If these figures are to be believed, maybe it doesn’t need to be.

Image credits: Oily hands: Via The Huffington Post. BP logo: BP. BP stock chart: wikiinvest.com. Hurricane Katrina: NASA.

Update: Apparently, BP's appeal for catchphrases continues; the new procedure is being shorthanded as "cut and cap." Be prepared to add this to the lexicon of corporate incompetence, shortly.

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