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Avoiding the Next BP



November 06, 2010 – Comments (0) | RELATED TICKERS: BP

In this blog by TMFDanDzombak he asks the question: BP (NYSE: BP) had always been thought of as a blue chip, a stock you can invest in and not worry. But then the Deepwater Horizon disaster happened, lopping off nearly 40% of the company's value. In dollar terms, that's more than $60 billion of company value, gone in less than three months. Many investors are furious and are wondering if this was foreseeable. So how can you avoid the next BP?

He then talks about the Project for Government Oversight, "POGO" which is an excellent source of information about misbehaving companys.

POGO maintains the Federal Contractor Misconduct Database......, detailing instances of misconduct from 1995 to the present. Over 15 years, you would expect there to be some instances of misconduct; people are human, after all. What's interesting is to look at the companies with the most instances of misconduct.

He then finishes with the following suggestions and question:

Lesson to be learned
So what can we learn from this?

1. Beware companies that have serious records of mistreating the public trust. This flouting of ethical conventions suggests that such companies will ultimately treat shareholders poorly, too.

2. Diversify. Don't let a BP-like event wreak havoc on your portfolio. It's terrible when you hear stories of people being invested in only one or two stocks and losing all their retirement savings. Don't let this happen to you.

3. Do your homework: BP's atrocious record was available to the public.

What do you think? Is this a real way to avoid the next BP, or just a case of hindsight being 20-20? Let us know in the comments box below.

I suggested the "left" wing rags and blogs are the source he was looking for.

The POGO database is a good place to start. The incompetence of corporate America is best described by the "left" in places such as "Mother Jones", Common Dreams"  "" websites regularly denounced as "liberal" "left" or "anti business" where  the ideals of Libertarian thinking come closest to fruition as private citizens pay through voluntary contributions for the truth that neither corporate America nor their libertarian lapdogs would have you know. 

In the case of BP there has been a decade of atrticles about their abuses in Nigeria and South America and problems in Alaska and Canada.

But this is about the "next" BP, not the last one.

The "Next" BP:

Unfortunately this episode of "Avoiding the Next BP" is also about the last BP. Wise and Learned investors have bid the share price of BP back up to 3/4 of it price before the Gulf disaster. Presumably this means they believe that the risk of another disaster from a company that blatently ignored construction standards, with disastrous results will not let it happen again.

What R U - Nuckin Futs!?

They have already let it happen again, it just hasn't happened yet. .

Abrahm Lustgarten reports in ProPublica;

The extensive pipeline system that moves oil, gas and waste throughout BP's operations in Alaska is plagued by severe corrosion, according to an internal maintenance report generated four weeks ago.

The document, obtained by ProPublica, shows that as of Oct. 1, 2010 at least 148 BP pipelines on Alaska's North Slope received an "F-rank" from the company. According to BP oilworkers, that means inspections have determined that more than 80 percent of the pipe wall is corroded and could rupture. Most of those lines carry toxic or flammable substances. Many of the metal walls of the F-ranked pipes are worn to within a few thousandths of an inch of bursting, according to the document, risking an explosion or spills.

BP oil workers also say that the company's fire- and gas-warning systems are unreliable, that the giant turbines that pump oil and gas through the system are aging, and that some oil and waste holding tanks are on the verge of collapse.

In an e-mail, BP Alaska spokesman Steve Rinehart said the company has "an aggressive and comprehensive pipeline inspection and maintenance program," which includes pouring millions of dollars into the system and regularly testing for safety, reliability and corrosion. He said that while an F-rank is serious it does not necessarily mean there is a current safety risk and that the company will immediately reduce the operating pressure in worrisome lines until it completes repairs.

“We will not operate equipment or facilities that we believe are unsafe,” he said.

And he really means it when he says that. I'd rather hear him say they will not operate equipment or facilities independent engineers believe are unsafe. Or their own field mechanics believe are unsafe. But that is me.

In 2006, two spills from corroded pipes in Alaska placed the company's maintenance problems in the national spotlight. At the time, BP temporarily shut down transmission of oil from its Prudhoe Bay field to the continental United States, cutting off approximately 8 percent of the nation's domestic oil supply, while it examined its pipeline system.

Apparently they believe that a pipeline is safe right up until shortly after it begins leaking.

Photographs taken by employees in the Prudhoe Bay drilling field this summer, and viewed by ProPublica, show sagging and rusted pipelines, some dipping in gentle U-shapes into pools of water and others sinking deeply into thawing permafrost. Marc Kovac, a BP mechanic and welder, said some of the pipes have hundreds of patches on them and that BP's efforts to rehabilitate the lines were not funded well enough to keep up with their rate of decline.

"They're going to run this out as far as they can without leaving one dollar on the table when they leave," Kovac claims

In BP's defense, Propublica reports;

BP Alaska's operating budget is private, so the picture of its maintenance program is incomplete. But documents obtained by ProPublica show that BP has pumped hundreds of millions of dollars into maintenance and equipment upgrades on the North Slope since the 2006 oil spills. In 2007, BP's maintenance budget in Alaska was nearly $195 million, four times what it was in 2004, according to a company presentation. In 2009, $49 million was budgeted to replace and upgrade the systems that detect fires and gas leaks alone.

BP's employees are less impressed.

Despite the investment, workers say that the capabilities of equipment of all types continue to be stretched and that maintenance plans set years ago remain incomplete. BP employees told ProPublica that several of the 120 turbines used to compress gas and push it through the pipelines have been modified to run at higher stress levels and higher temperatures than they were originally designed to handle. They also said that giant tanks that hold hundreds of thousands of gallons of toxic fluids and waste are sagging under the load of corrosive sediment and could collapse.

"When you make a complaint about it, rather than fix it right they come up with another Band-Aid," said Kris Dye, a BP oil worker and United Steelworkers representative on the Slope. "It's very frustrating."

It is not unfair to suggest that investors could share in his frustration.

This is not advice to short BP, you can neglect a well engineered machine for a long time before it goes critical. But I would not be long BP either.

The rest of the story is here.

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