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BP was on Roids



June 23, 2010 – Comments (8) | RELATED TICKERS: BP

Obviously there has been a lot of talk about BP lately.  Many people, including myself at first, looked at this situation as being black or white...either the company will bankrupt or it will survive and yield incredible returns for investors because it is such a tremendously profitable cash cow.  As I flipped on CNBC this morning and once again saw the live feed of the disgusting leak in the bottom corner of the screen I thought of another less talked about possibility.

BP is one of the most inept organizations that I have seen in a long time.  Despite this company's obvious ineptitude, its margins haven't been that bad.  At 6.81 for the most recent year, the company's net profit margin was better than Chevron's 6.15, Exxon's 6.33, ConocoPhillips' 3.23, Total's 6.23, Royal Dutch Shell's get the idea.  

How can this be?  

Obviously BP has been cutting corners.  How much of this outperformance is because BP has been cutting corners left and right to get projects done earlier than they would have been?  If the Company doesn't file for bankruptcy, one would assume that the days of massive corner cutting are gone.  In turn, BP's margins will be significantly less impressive in the future.  It is difficult to quantify how much worse its profit margins will be, but I suspect that additional regulation and less corner cutting will have a material impact upon the company.  Heck, the U.S. could even ultimately ban BP from drilling in the U.S.

I guess that my point is that people seem to be betting that once this disaster is past us (and I wouldn't be surprised if they aren't able to stop the gushing well until some time this winter) the company will slowly return to business as normal, like what happened with Exxon and the Valdez.  Well this isn't an isolated incident that happened because a Joseph Hazlewood-like tanker captain got drunk on the job through little fault of the company. The Horizon incident is one of a string of problems that BP has had, including the Texas refinery and the Alaska pipeline, that show without a shadow of a doubt that the company cuts corners and ignores saftey in the name of profit. 

I liken BP's recent annual results to Mark McGwire, Sammy Sosa, or any other roid-monger's steroid, HGH, and amphetamine fueled power surge in major league baseball several years ago.  Look at what has happened to scoring in MLB this year now that full testing for many performance enhancing drugs has been implemented...pitching is dominating.  We've already seen more perfect games thrown this year than in any other and we aren't even at the All Star break yet. 

BP is the corporate equivalent of baseball's Gary Matthews Jr.  Mathews unexpectedly put up a career year in 2006, with 19 HRs, 79 RBIs, and 194 hits.  Impressed by his statistics, the Anaheim Angeles signed Matthews to a 5-year, $50 million contract.  The following season, rumors surfaced that Matthews had been cheating by using Human Growth Hormone.  Once he stopped taking it (allegedly), his numbers fall off a cliff.  Matthews batted only .242 with 8 home runs during the 2008 season.  He has been mediocre ever since. 

I strongly suspect that the "old" steriod-fueled BP is long gone.  The new company will probably be significantly less profitable going forward.  There is still a lot of upside here if BP survives, but not nearly as much as some people think.


8 Comments – Post Your Own

#1) On June 23, 2010 at 7:17 PM, SultanOfSwing (32.35) wrote:

I thought you meant BP was on 'rhoids (as in hemor-rhoids)!  Not a good spot to be in either, come to think of it.

I red-thumbed BP today thinking it will break out of its brief consolidation -- to the downside.

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#2) On June 23, 2010 at 11:24 PM, rwebankrupt (74.38) wrote:

Stick with baseball because you do not seem to be able to read the balance sheet reserve ratios.

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#3) On June 24, 2010 at 6:25 AM, TMFDeej (97.65) wrote:

Hi rwebankrupt.  Did you read the entire article?  I was talking about BP's profit margins.  I never even passed judgement on whether the company will survive or not.  

The premise of this post is that part of the reason BP has been so profitable in the past is that it has been cheating...cutting corners that other companies in the industry don't.  

It most likely won't be able to take the same shortcuts in the future that it has been in the past, making it a less profitable organization if the company survives.

This has nothing to do with reserve ratios, it has to do with the fact that BP could go from having some of the best margins in the industry to some of the worst.


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#4) On June 24, 2010 at 2:27 PM, rwebankrupt (74.38) wrote:

Yes I read your entire article.

This is what you know

a lot about baseball

you watch a lot of tv 

This is what you do not know

Deep shore royalty distributions

Relief Wells timeframes

can't read a balance sheet as the companies you compared are borrowing their dividends...except TOT which has a few different problems

proving gross negligence or wilful misconduct  is not as easy as  baseball

All corners cut were well above the law because of your lawless lawmakers

BP is the biggest contributor to green movements

BP , green movements, and government have developed a much more profitable market.

In order for that profitable market to be approved this disaster must get the baseball fans support 


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#5) On June 25, 2010 at 4:26 PM, TMFDeej (97.65) wrote:

Must not respond to trolls.  Must not respond to trolls.


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#6) On June 30, 2010 at 12:45 AM, alberta911 (< 20) wrote:

rustupid? I am rwebankrupt  You give him ronda...he calls you a troll.

I tell him about morning drill reports....check tomorrow what he calls me

When you know better you do better and I think there are other people that do not require legal or oil and gas help from us because  TMFDeej knows the industry better than us. 


In the meantime step away from the Bloomberg terminal and quit shorting this guy.


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#7) On July 01, 2010 at 1:06 AM, rwebankrupt (74.38) wrote:

Must not respond to trolls.  Must not respond to trolls?

Why not learn instead of name call?

It is not gross negligence. Standard operating procedure in a climate of lax regulations. Bringing a well to production on the cheap as fast as possible is the mantra of all Gulf platform drillers. APC was probably licking its chops over the reduced costs before it blew. They will have to pay when the facts come out. Being cheap and in a hurry is not gross negligence.
It's the way America does business.



You do not think margins and ratios are like going to first before you goto second base?

BP is one of the most inept organizations that I have seen in a long time. No they just play by the rules that are provided.

  alberta911 knows better than I will ever know about o/g

TMFDeej knows better than I will ever know about baseball

rwebankrupt would never use my Bloomberg terminal to short you or anyone else.  Report this comment
#8) On July 01, 2010 at 6:14 AM, TMFDeej (97.65) wrote:

It's not what you said, rwe, it's how you said it.  

Troll is not name calling, it's part of the Internet vernacular: 

While it may be difficult to maintain a level of civility in an anonymous forum like this, I respect the comments of people who do so much more than those who are rude.


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