The BP spill that started when an oilrig operated by BP, Deepwater Horizon, sank on April 22. Since then, approximately 210,000 gallons of crude oil have spewed into the Gulf of Mexico causing dire consequences to the environment, marine life, and to the economy.
1. Louisiana’s seafood industry, which is worth $3B per year, is currently non-operational.
2. BP stocks suffered an all-time low, with shares falling 22% less than 10 days after the accident.
3. BP has already lost $30B in market value since then.
4. BP spends roughly $6M a day to cover cost of cleanup, and the costs are rising as more advanced measures are being used.
5. BP is held liable for compensation as a result of economic losses but such liability is capped at $75M (as per Oil Pollution Act of 1990).
Without doubt, the accident is a huge tragedy and its effects already echo to as far as Europe and even the Arctic, with many predicting long-term impact on the environment. From the stock market perspective, BP continues to be punished for what happened, and in fact, as of May 21, shares went further down 4.2% (Bloomberg). Now the question investors might be asking is should they dump BP stocks? There is no simple answer to this, as there are always two sides to a coin.
Dump or Keep?
From one point of view many will think that investing or continuing to invest in BP stocks is an unethical thing to do, considering the harm that the oil spill has caused. But whilst this may be the case, oil companies are still some of the biggest players in the economy, and there will always be a need for oil in the energy market. Others fear that BP might never be able to recover from this catastrophe. But if you look closely, BP has $70B in assets plus around $21B in gross income last year. The estimated liability this energy giant is facing is at $8B. Do the math and you will see that BP is not going to be closing shop anytime soon. If you have BP stocks, do not dump.
The Good News
In fact, BP stocks went up 2.87% Thursday after the introduction of its “Top Kill” technology to stifle the oil spill. The spill may be a major hiccup for the company but it will recover. And although it is expected for stocks to go below 50, it should go up once the mess clears.