Senate to Lay the Smack Down on Oil Companies
By Brian Hicks | Tuesday, June 8th, 2010
After what seems like an eternity of bad news, BP finally announced yesterday that it had something good to share with the world...
A containment cap recently attached to the sunken Deepwater Horizon well that’s been spewing 1 million barrels of oil per day into the Gulf of Mexico is actually capturing a portion of the runaway crude.
Time to break out the party hats?
Well a portion is, of course, better than none — which is what BP was stopping up until yesterday.
However, the consensus seems to be that this spill won’t be fully contained until the fall… which means hundreds of thousands of gallons of oil will continue to gush into the water for the rest of the summer, killing wildlife and industry alike.
So while a couple of high fives may have been exchanged at BP headquarters yesterday, they’re hardly deserved.
Besides, this capping isn’t even the biggest story in the oil industry today...
In fact it’s a potential UNCAPPING that’s got petro barons talking.
You see, Senate Majority Leader Harry Reid has announced that he’s planning to move comprehensive energy legislation up to July’s docket. He’s also requesting that Senate chairmen come up with recommendations on direct legislation dealing with the Gulf spill.
“I think it is extremely important that you each examine what could be included in a comprehensive energy bill that would address the unfolding disaster in the Gulf of Mexico,” Reid said in a recent letter to the Senate chairmen.
And what might that legislation include?
Up until now, oil companies have only been liable for up to $75 million in damages when it comes to oil spills. Consider that the estimated cost of BP’s blunder is set to reach as much as $14 billion, and I’m sure you can see the writing on the wall.
Reid is pushing to uncap that liability limit and force BP to pony up the dough for their accident.
"Among the actions I think we need to explore are ensuring that the oil companies are held accountable for their actions and the damages caused by their operations,” he states in his letter.
Given the absolute horror show that the Deepwater spill has become — and the onslaught of negative publicity anything associated with offshore drilling has been hit with — it’s very likely that Reid will have the public’s support on this one.
After all, BP is getting away with paying a paltry $75 million. (For the same amount, an MLB team can buy a slightly above-average ball player for only about five years.)
It seems absolutely criminal in the eyes of the public, and anyone who voted against them having to pay far more than that for their mess would be vilified beyond belief.
If the legislation passes, and no matter how much BP ends up paying, one thing is for certain…
Oil companies are going to think long and hard about how important offshore drilling truly is to them these days.
Plain and simple: Does the risk outweigh the reward?
Do petro firms wants to drill 35,000 feet into the ocean for black gold when the potential cost of an accident is completely on their shoulders? Tens of billions of dollars at stake if a single thing goes wrong…
At least in the short term, the threat of new legislation like could serve to spook oil companies from setting foot back in the water. The potential for a PR and financial nightmare is just too great right now.
Bad news for our oil supplies, no doubt… but great news for inland oil reserves who will see focus swung squarely around to them in the meantime.
Reserves like North Dakota’s Bakken formation, which you’ve read so much about in the pages of Energy and Capital.
The Bakken region is so far estimated to hold over 4 billion barrels of untapped oil… but that figure could now be as high as 9 billion with the discovery of the Three Forks/Sanish zone underneath the Bakken shale.
Big firms like Hess are already involved there. But it’s the smaller oil companies that are really going to make their mark here — and make their shareholders some big profits.
Just a couple weeks ago, Brigham Exploration Co. — an independent oil exploration firm from Texas — saw their share price shoot up 11% in a single day, thanks to positive well results from their Bakken properties.
The BP spill is only going to produce more stories like these over the next few months.
President Obama has put at least a 6-month freeze on new offshore drilling permits, so we’re looking at a minimum of half a year’s worth of major activity in the inland oil market...
As always, we'll keep you up to date on the latest hot zone in domestic energy production as it develops.
You’ll want to keep your eyes peeled in the next couple of weeks for a brand-new report we’re putting the finishing touches on right now. This report will detail 3 small American drillers all with big prospects in the Bakken region. < KOG and AEZ could be in this report.
The U.S. Government is practically putting a mile-high fence up around its waters right now and daring oil companies to be so bold as to even think about hopping it to drill again.
It’s not a dare I believe they’ll take — not while the threat of uncapped liability is staring them straight in the eye.
Their only solution is to move inland and take their chances there. And you better believe those drills will be flocking to North Dakota very soon.
So check back with us soon for your free report giving you complete details on what your next move should be in this new oil landscape of ours.
To your wealth,
Brian Hicks
Publisher, Energy and Capital
BP Oil Spill - long-term impact
BP Oil Spill - long-term impact
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
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celtic
Re: BP Oil Spill - long-term impact
This is from seeking alpha.
Interesting if the government can dictate dividend restrictions to BP can they then dictate to other companies? I I think additional energy companies would be in sight.
There is increasing speculation that federal lawmakers will force BP (BP) to eliminate its $10 billion dollar dividend payment due in July. Lawmakers are concerned as to how it will look for BP to pay a dividend while the Gulf of Mexico is still gushing with oil. It appears more likely than ever that BP will suspend its July dividend payment in the face of mounting governmental pressure. The question remains, Does the government have the right to make BP suspend its dividend?
The Government’s Take
1) It doesn’t look good from a political perspective to see BP shareholders receiving cash at a time when there is a huge oil spill caused by BP.
2) BP needs to preserve capital as the company does not know the extent of its liability. There will be huge liability claims from deaths, injuries, unemployment, and environmental damage.
3) It’s in the best interest of BP to eliminate its dividend if the oil company wants to remain an ongoing entity. The $10 billion dollars saved could help BP potentially avoid bankruptcy.
A Shareholder’s Take
1) As a BP shareholder, I would prefer if the government left any decisions on a dividend cut up to BP. It may not be politically pleasing but decisions on company operations should be left up to company management. It would make sense if the government forced BP to suspend its dividend because the company took a government bailout. But that is not the case at this time.
2) The dividend is one of the only reasons left to own the stock. Shares have dropped almost 50% and are having trouble staying above $30 now. A massive selloff would likely take place if the dividend is eliminated.
3) The dividend has no effect on BP’s ability to clean up the oil spill. Regardless of whether or not BP cuts its dividend, the Gulf oil spill will not be cleaned up any faster.
Final Thoughts
I don’t believe that it is the government’s place to interfere with the operations of a company that it has no financial stake in. BP will have a hard enough time trying to remain a stand alone entity after the gulf spill crisis is over. If the dividend is eliminated, I think that the majority of investors will jump ship.
Disclosure: The author owns shares of BP
Interesting if the government can dictate dividend restrictions to BP can they then dictate to other companies? I I think additional energy companies would be in sight.
There is increasing speculation that federal lawmakers will force BP (BP) to eliminate its $10 billion dollar dividend payment due in July. Lawmakers are concerned as to how it will look for BP to pay a dividend while the Gulf of Mexico is still gushing with oil. It appears more likely than ever that BP will suspend its July dividend payment in the face of mounting governmental pressure. The question remains, Does the government have the right to make BP suspend its dividend?
The Government’s Take
1) It doesn’t look good from a political perspective to see BP shareholders receiving cash at a time when there is a huge oil spill caused by BP.
2) BP needs to preserve capital as the company does not know the extent of its liability. There will be huge liability claims from deaths, injuries, unemployment, and environmental damage.
3) It’s in the best interest of BP to eliminate its dividend if the oil company wants to remain an ongoing entity. The $10 billion dollars saved could help BP potentially avoid bankruptcy.
A Shareholder’s Take
1) As a BP shareholder, I would prefer if the government left any decisions on a dividend cut up to BP. It may not be politically pleasing but decisions on company operations should be left up to company management. It would make sense if the government forced BP to suspend its dividend because the company took a government bailout. But that is not the case at this time.
2) The dividend is one of the only reasons left to own the stock. Shares have dropped almost 50% and are having trouble staying above $30 now. A massive selloff would likely take place if the dividend is eliminated.
3) The dividend has no effect on BP’s ability to clean up the oil spill. Regardless of whether or not BP cuts its dividend, the Gulf oil spill will not be cleaned up any faster.
Final Thoughts
I don’t believe that it is the government’s place to interfere with the operations of a company that it has no financial stake in. BP will have a hard enough time trying to remain a stand alone entity after the gulf spill crisis is over. If the dividend is eliminated, I think that the majority of investors will jump ship.
Disclosure: The author owns shares of BP