The signs were there

Finweek English Edition - - Cover Story -

SPEAK­ING ABOUT THE oil spill in the Gulf of Mex­ico, Ter­ence Craig, chief in­vest­ment of­fi­cer at El­e­ment In­vest­ment Man­ager, says many warn­ing signs were al­ready there and that high­lights the need for proac­tive anal­y­sis by both in­vestors and an­a­lysts. “As in­vestors we have to con­sider ‘low’ prob­a­bil­ity/ high im­pact sce­nar­ios in our anal­y­sis – and we try to in­clude those in our re­search by build­ing a range of val­u­a­tion sen­si­tiv­i­ties to pos­si­ble events,” Craig wrote in a re­cent note to clients.

He pointed out re­search had shown that over the past five or so years BP had been pinned with around 760 safety vi­o­la­tions and US$140m in fines. By con­trast, com­peti­tors such as Cono­coPhillips and Sunoco had been charged with just eight vi­o­la­tions. “It ap­pears share­hold­ers and an­a­lysts should have been fo­cus­ing more on BP’s safety stan­dards and pro­ce­dures to pre­vent such a dis­as­ter, as there seemed to be plenty of warn­ing signs – par­tic­u­larly rel­a­tive to other oil com­pa­nies,” he says.

What’s im­por­tant to note for share­hold­ers is that, for an ex­tended pe­riod, BP’s share price was able to shrug off those fines and vi­o­la­tions un­til the oil spill in the Gulf of Mex­ico. Apart from the brand dam­age that’s been done and the loss of a key ex­ec­u­tive, the im­pact on BP is likely to be felt for many years – in­clud­ing the on­go­ing costs of lit­i­ga­tion.

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