BP Far From Out Of The Woods

Todd Shriber
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Funny thing about a sudden change in the tenor of headlines in the business world: When they shift from really, really bad to not so bad, as is the case with BP, it is easy to be fooled into thinking all is well and it is back to business as usual. No, oil isn't leaking into the Gulf of Mexico anymore, and yes, BP is doing an admirable job of selling assets to raise cash for spill expenses, but to say the company is out of the proverbial woods would be inaccurate.

Remaining is the thorny issue of exactly how much BP's liability tab for the spill is going to be and that is an issue that cannot be ignored or understated. The aforementioned asset sales are going well thanks to voracious demand for interntaional energy assets, but BP (BP) still has at least another $18 billion-$19 billion worth of stuff to sell. Selling a stake in Vietnam is one thing, but at what point do investors start to become concerned about BP's growth prospects when assets with vast potential like those in Colombia are sold or if the company has to part with crown jewels like Prudhoe Bay?

And speaking of investor concern, a fine piece by Bloomberg News highlights the widening gap between BP and chief rival Royal Dutch Shell (RDS-A). Two trading days into this week and Shell's market value is about $67 billion bigger than BP's. Put another way, Shell is about one Occidental Petroleum (OXY) bigger than BP. A few years ago, BP and Shell were rumored to have held merger talks. Back then, it may have been hard to discern what company would have been the buyer. Now, not so much.

The Bloomberg piece highlights some interesting comments by analysts and investors regarding BP's dividend. Paraphrasing those remarks, I would say that new CEO Bob Dudley better restore part of the payout early next year or trouble looms. Figure it this way, with Shell and Total (TOT) yielding around 6%, why would a conservative retail investor, a pension fund, endowment or institution of that stripe get involved with BP's shares?

In August, the swaps market was pricing in a restoration to BP's dividend in 2011...at 65% less than what the company paid in the first quarter of this year. One analyst said if the BP dividend doesn't return quickly, investors will grow frustrated and dump the stock, making the company vulnerable to a takeover again.

Interesting, but after Dudley criticized Shell, Exxon Mobil (XOM) and Chevron (CVX) for contributing to an environment of fear following the Gulf spill, that trio isn't going to run to acquire BP's unknown spill liabilities. At least not unless they can acquire BP at such a bargain that they will end up with the last laugh.

These were petty comments made by Dudley and they may illustrate that a culture change at BP is going to be hard to come by. At least Dudley was smart enough to not say anything that would rankle a Chines oil major. After all, he could be calling one of those companies ''boss'' one day.