The signs were there
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.