You knew this was coming once BP (BP) admitted that the top kill effort to stop the flow of oil in the Gulf of Mexico had failed.
On Tuesday June 1 U.S. Attorney General announced that the Justice Department has opened a civil and criminal investigation into BP and other companies involved in the Deepwater Horizon disaster. Holder’s announcement came just hours after President Barack Obama promised in a 10-minute White House address to prosecute any parties found to have broken the law.
What comes next? More politicians who can tell which way the wind is blowing and feel that they need to do something before the storm blows them away. I think the need to be seen doing something might even result in action in Washington to move the country away, even if only so slightly, from its dependence on oil.
Stranger things have happened when politicians are running scared.
There’s no quick end in sight to the flow into the Gulf. BP doesn’t have a real solution—the oil company is next going to try a new version of the containment dome that failed to work before the top kill failed to work. And the truth is that the federal government is completely dependent on the oil company and its service and drilling contractors for any equipment that might stop the flow.
But that hasn’t stopped the buildup of political pressure on the Obama administration and other elected officials in Washington to do something—or at least to sound like it is doing something. So an angry President Obama, sounding like a prosecutor himself, said “My solemn pledge is that we will bring those responsible to justice.”
The potential consequences for BP are huge.
There’s talk in Washington of seizing the company’s U.S. assets. BP’s stock plunged another 15% on the news of the Justice Department investigation and the company is now cheap enough that somebody in the oil industry could take a run at acquiring it. (Although it’s unlikely that anyone wants to acquire the Deepwater Horizon catastrophe.)
The Justice Department investigation will look for violations of the Clean Water Act, the Oil Pollution Act of 1990, the Migratory Bird Treaty Act, the Endangered Species Act, and the Refuse Act, which covers discharges into waterways.
In the 1989 Exxon Valdez disaster ExxonMobil (XOM) pled guilty to criminal violations of the Clean Water Act, Migratory Bird Treaty Act, and Refuse Act.
But more is at stake here than just the share price or indeed the future of BP, Transocean, and Halliburton. The larger question is whether or not the current line of defense for the entire oil industry will hold.
The proposals I’ve heard so far–for a 6-month moratorium on new leases for off-shore drilling, for delays in Royal Dutch Shell’s (RDS) plans for drilling off Alaska’s northern coast, for breaking up and reforming the Minerals Management Service—don’t constitute major changes in the way that the oil industry does business. If that’s the sum of changes after the worst oil spill disaster in U.S. history, then the oil and gas industry should consider the $900,000 it gave to the Obama campaign in the 2008 election cycle, according to the Center for Responsive Politics (John McCain’s campaign got $2.4 million) and the $12.7 million the industry has given to Congressional campaigns in the 2010 election cycle (again according to the Center for Responsive Politics) quite a bargain.
So far, so good, from the oil industry’s point of view There’s been remarkably little rhetoric—and even less action—in Washington about changing the rules in the energy sector. The oil industry has so far successfully kept any talk about crash programs to reduce U.S. dependence on oil or about an effort to push ahead aggressively on developing alternatives to oil off the table. This is indeed a terrible disaster, the industry argument goes, but we have to drill in the Gulf to keep the U.S. supplied with energy.
But it’s a very small and very logical step from the Obama/Holder tough talk of June 1 to legislation that would punish the oil industry—and play to absolutely justified public anger—by promoting conservation, nuclear, solar, wind, ethanol, and bio fuels.
It’s never wise to underestimate the power of campaign contributions to keep politicians in line, but it looks like politicians are finally starting to realize that anger is running so high that they can’t simply vote their self-interest in this crisis. There are more votes right now up for the taking for politicians who go after the oil industry than there are dollars in the industry’s campaign and lobbying budgets. President Obama has just demonstrated that he gets the new political math. Other politicians are doing the same calculations and coming to the same conclusion.
It’s probably not very clear to politicians what voters want because voters themselves don’t seem to know. In a poll conducted by CBS last week 70% of Americans disapproved of the BP’s efforts to stop the flow of oil. (What about the other 30%? What exactly are they waiting for before they make up their minds?)
But 46% of Americans still favor expanded offshore drilling. That is down from 64% in favor in 2008. I suspect the number will be even lower by August if the oil is, as now projected, still flowing.
In the short run I think that means we can expect a lot of flailing about by politicians looking for some way to score points. So Alaska Senator Lisa Murkowski, the senior Republican on the Senate Energy and Natural Resources Committee, opened a recent committee hearing with a statement saying that she planned to make sure BP paid everything it was obligated to pay. Murkowski is one of the top five senators in contributions from the oil and gas industry in the 2010 election cycle. She recently blocked legislation that would have increased oil industry liability in the event of a spill.
And in the long run?
Just about three weeks ago I thought that the Deepwater Horizon disaster had killed all chance of any legislation on global climate change and seriously reduced the chances for any kind of national energy legislation at all. (For more on that thinking and a list of energy winners and losers if Congress does nothing, see my post https://jubakpicks.com/2010/05/14/the-disaster-in-the-gulf-has-killed-the-chance-for-a-national-energy-policy-here-are-the-winners-and-losers-if-im-right/) My thinking then was that since the only way to bring oil-state Democrats and maybe a Republican or two on board was to offer expanded offshore drilling, and that since the Gulf oil disaster had killed that possibility, then energy legislation was dead too.
The disaster is so much worse than I thought on May 14 and the odds that it will run for another two or three months so much greater that I’d revise my calculation of the odds against a national energy bill. I still wouldn’t call its chances good but I now think there is a chance. The rising tide of public anger seems to have convinced the Democratic leadership in Congress that bringing a bill to the floor for a vote is a politically viable idea since it would force Republicans either to vote for the legislation or cast a vote that Democrats will rush to portray as for big oil.
Senate majority leader Harry Reid (D-NV) held a special meeting of the Democratic caucus to plan strategy right after the Memorial Day recess.
So if I’ve changed my thinking on the chances for a bill, have I also changed my thoughts on the winners and losers in the energy sector?
I think it’s way too early to go out on a limb on any stock in the sector. The odds are still unfavorable on a bill and the shape of any legislation is anyone’s guess. Add in the current downward bias in the stock market and I’d certainly wait rather than buy.
But while I’m waiting, I’d put some time into researching stocks in the solar sector. They’ve been heavily beaten up by the euro debt crisis and delays in any big expansion of solar credits in the United States. Debt strapped European governments—and here Spain is the key—look like they will cut their budgets for supporting the purchase of solar panels and the production of electricity from solar installations. The industry had been hoping that expanded U.S. support would pick up the slack, but so far that support has been less than hoped.
Which makes solar a sector where a relatively small change in U.S. policy could make a huge difference to individual stocks. I’d focus my research on these three solar companies: First Solar (FSLR), a leading maker of thin film solar panels, SunPower (SPWRA), a U.S. solar cell maker with its roots in Silicon Valley’s chip industry, and Suntech Power Holdings (STP), a Chinese solar producer that’s moving strongly into manufacturing and selling in the United States.
I’m going to add all three of these stocks to my watch list https://jubakpicks.com/watch-list/ with this post.
Full disclosure: I own shares of Suntech Power Holdings in my personal account.
southof8,
Current climate…I agree relationships are strained (whose wouldn’t be?). “Could work together”…change that to MUST. The last thing a business enterprise wants is to be scrutinized by anyone, much less the government! However, when you choose to have a going concern in an area of business that attaches to it federal laws, permits and more regulations than you can “shake a stick at”, you’ve got to expect working together is a possibility (definitely their goals are different). Due to the nature of the press etal, transparency must be whether they wish it or not…unless they want to stew in their juice! At any rate, that would be my approach…might not work…might not get cooperation…at least everyone would know where I stood! On that, I would be beaten less serverely! (ha)
On to investing…there are investment opportunities…gotta go find them…like drilling for oil!
Bob, I still don’t get it.
I’m not convinced the Government and BP could work together, as you suggest, and stand shoulder to shoulder to attack the problem.
Their goals are inherently different. BP’s goal was and is to mitigate the financial damage to the extent possible, both in connection with the explosion and going forward for future drilling projects, and get back to making $40 billion a year. It was not and is not concerned about environmental damage. If it was, it would not have taken the brazen risks in the first place. That’s not a criticism, it’s a fact. BP’s managers are paid to make money for BP’s shareholders, not protect the environment.
The government wants to ensure this never happens again, regardless of how much it might cost big oil to change the way they do business. It’s pretty obvious all the assurances of safety in deep water drilling were based on pure guess-work and optimism. “Don’t worry, it won’t happen and if it does, we have a plan.”
The government (and it makes little difference who is in the white house) is not buying that line anymore. Drill baby drill is so last year. Even Lisa Murkowski is jumping off that bandwagon.
The government is going to see how this leaking well is solved and figure, that’s the sollution for future problems, and if that makes drilling twice as expensive, too bad. My view is there will be a relief well drilled concurrently with the main well, as a back up valve in case of a problem, and that will be the going forward sollution. It certainly isn’t going to be some super high tech blowout preventer that doesn’t prevent blowouts. We’ve seen up close and personal just how great a risk failure of a deepwater well poses to human and environmental life, not to mention economic well being.
That is the last thing BP (or any oil company) wants to hear, hence it won’t be standing shoulder to shoulder with the government. Their respective goals are simply different.
I agree the Obama administration has not conducted itself particularly well in responding to this disaster. Nothing new there.
But the suggestion that everyone behave with “transparency” and work together because they have common goals is wishfull thinking on both fronts- for the administration and for BP. The last thing either wants is transparency- on that, they can agree.
semievolved,
Oh, my goodness! Don’t fall into the “ASSUME” syndrome!
My only angst is with WHAT was said, by WHOM it was said and WHEN it was said. Notice I used the word, SAID, not DID! It would be fruitless to blame the Obama administration for the following: 1. The events leading up to the explosion. 2. The expertise in the oil drilling business. Although mistakes were made by the Federal authorities that oversee inspections made regarding this mess, they were made under the Obama administration’s watch (sorry, it is what it is). “W” (I presume you’re referring to former President Bush) clearly has a different philosophy in public/business policy.
Everyone has plenty of fingers to point in the “blame game”. I could, but won’t go there. The purpose of my previous comments were to suggest that the Obama administration’s lack of experience in the arena of public statements and the way he has chosen to deploy the “chief law enforcement officer in the nation with his legal “billy club” in this disaster is further proof of ineptitude. No question…BP’s guy needs to be muzzled!
Ok, semievolved, here’s what I would have done/said in this disaster: 1. Create an attitude of teamwork…cooperation with BP to mitigate the leak and its clean-up. As opposed to “We’ve got our foot on their throat” 2. BP and I would show concern toward the families who lost loved ones in the explosion. 3. Both of us (BP & I) would admit, with much transparency, areas where the process went astray, at the same time acknowledging BP’s financial responsibility to clean up, compensate businesses and families, in keeping with the “right thing to do” and lawful obligation.
You want to create an atmosphere of mutual cooperation, not an adversarial relationship (that comes later naturally with lawsuits, etc.). Admittedly, even if both parties had done what I suggested, the outcome of the spill is the same. The government is in no position to fix the spill and BP is doing everything they can to stop it. Attitude determines altitude always! The public will continue to spew many shades of reaction…rightfully so! WHAT we say and HOW we say it and WHEN we say it lends more to success in a positive public perception and good will…after all, the disaster is already bad enough! Now do you get it?
I think that solar could be good, in the short run, to realize a, so called, ‘zero emission’ constructions. That is either a building or a house that do not need extra energy to be operated, a la Renzo Piano philosophy. With sufficient political will that could be implemented to revive the housing, labour and maybe even the financial markets.
@bsdgv
I hate Robert Reich. I hear him on Marketplace every once in a while, and he drives me nuts.
This guy suggested mass immigration as a solution to Social Security problems arising from demographic changes. Seriously! Who will pay for the immigrants when they start retiring? Finding new investors continuously to pay earlier ones – isn’t that a hallmark of a Ponzi scheme?
The mess in oil is similar to the mess from the meltdown of Three Mile Island. TMI put the nuclear energy industry into a thirty year tailspin. Because of our reliance on oil, this wont happen right away to the oil industry but I’m afraid to be long any oil energy stock at this point.
Ed,
With you on that one.
I see a lot of back and forth in the market. Much to risky on capital IMO.
This is a point I start trading currency pairs as they become more predictable and less risky. I think DRR is one of the best plays out there. Now starting to look at a few other areas
No one ever talks about using bicycles for transportation. I have been commuting by bike for 25 yr. and its worked great. We need to do anything we can to avoid a carbon tax.
To Do:
1. Put BP under US receivership to make sure cost of rescue and cleanup is secured. Yes, this legally possible because BP is operating under US jurisdiction.
2. Stop releasing dispersants. So-called dispersants are toxic, and it’s crazy to add more poison to the Gulf.
3. Mobilize every possible tanker to siphon up crude from as close to the leak points as possible. BP has 24 tankers that are being used to make money for BP, not for clean-up duty.
4. Restart work on the second pressure relief well. Even two wells might not be enough.
http://robertreich.org/post/654549994/closing-the-hole-in-the-gulf-a-petroleum-engineer
Tom,
Like it or not, America is not a free market country. It is a mix of crony capitalism (Halliburton no-bid contract, AIG, GS, auto bailouts) and public welfare (social security, medicare, medicaid).
The economy is in the toilet because of an immense credit bubble that built up for more than a decade and finally burst. You can’t blame a single person for it.
If you’re worried about socialism, you should blame people from 1930s who voted for FDR’s New Deal, or those who supported LBJ’s Great Society. America has been “socialist” for a long time.
And it’s not one party that is to blame. Don’t forget that Medicare Part D – another welfare program – was passed by GWB and the Republicans who wanted to outdo the Democrats at their own game. What about faith-based programs? That’s another distribution of taxpayer dollars. Isn’t that socialism?
But you won’t hear that on Hannity. When the Democrats do it, it is obviously socialism and a move towards Soviet-style society. But if the Republicans do it, it’s err… patriotism? compassionate conservatism? Anything but socialism?
I heard on NPR recently that estimates for BP’s liability could be as high as 30 Billion USD. That’s where politicians step in to raise the liability limit from a paltry 75 Million USD to a “big” 10 Billion USD. Lisa Murkowski creates a huge stink about raising the liability cap claiming that she represents the interests of small (read: “mom-and-pop”) oil companies. But wait! The actual damages could be a lot higher than that.
Libertarian claims that government meddling is more likely to hurt than help seems to ring true over and over again.
Tom, you’re brilliant!! Turn the white house over to
Halliburton. Oh wait, it had its time in office. I guess it’s exxon’s turn.
Horizon diaster was a plot of our Azz-Clown President so he can take control of the oil industry. Obama needs to go. He’s ruining our country and pushing us toward socialism. Look at today’s market action based on poor jobs report…who owns that?? The buck stops with the President, and Mr. Obama is not getting the job done. Once his connection to the oil disaster is evident, he’ll be impeached!!!
ogowon,
I agree, any step would be progress.
grindy2424,
I’m not quite ready for natual gas yet. There has to be a step towards increasing demand for it. Right now, we have too much of an excess in the supply equation.
When the public decides solar subsidies should be at least equal to big oil subsidies it will take root. Once it takes root it will grow enough to be a viable addition to power the grid. All industries need gov coddling in the beginning. Name one that hasn’t received it. Alt energy has been going up against an enormously well funded and politically connected industry. But even assuming the tide turns, the cash flow is in carbon fuel producers for the next 20 years minimum.
Bp’s disaster could cost 30 billion and the company won’t miss a beat. Enron and worldcom were run by crooks. Bp is no different than any other big oil company,hubris and greed being common to all of them. That this is a suprise to anyone is the surprise. This is what happens when the vice-president allows oil executives to write energy policy.
semievolved,
I didn’t suggest using a nuke. That’s overkill.
When an oil driller needs to cap off an oil well that’s gushing on land (usually a burning one), explosives are the method of choice although they are last option because it makes the well undrillable afterwards.
Granted, this has never been done this deep in the ocean, but it should at least be considered. I have yet to hear anyone from either the government or BP consider it.
As for making this situation worse, how much worse can it get? We’re already having projected oil slicks in the Carolinas.
Folks
The market is up one day, then gives back next day. Yes, I know stocks “fluctuate”, but…….
Did I say yesterday that the foundation that breeds robust job creation has been removed? Yes.
Maybe cleaning the gulf can create more lasting jobs than the census.
Did I say yesterday “good luck” to all those who are tempting to jump on BP or so? Yes.
Did I said who would (want to) buy BP? Yes.
Ed,
You starting to look at Natural Gas players?
As always, Jims article is convincing, but it seems like solar has been the ‘next big thing’ for at least 20 years now and it’s still not mainstream energy. I have a hard time believing that this oil release will bring a turn in the tide of solar energy.
Ed,
I agree natural gas will take years but there are no quick fixes.
Live feed from BP;
http://www.bp.com/genericarticle.do?categoryId=9033572&contentId=7062605
bobisgreen
you act as though had someone else had been in charge, this would have been put to bed immediately with no adverse outcome. clearly, there were failures of equipment. it bothers me that obama is faulted for inadequate action yet i have seen no proof of that. he acknowledged that he govt does not have the expertise needed in the area and he attempted to let BP do what they are supposed to do. They are trying and failing but is that somehow Obama’s fault? it is especially irritating when those who hate big government when it comes to enacting strict, tough laws on industries whine the loudest when an avoidable disaster occurs and then cry for the government to solve it. wasn’t it W. who always felt that industry could be trusted to regulate itself? What would you have done differently, Bob?
Ed – what data do you have that blowing up the well would stop the leak? i have heard the conspiracy theory that BP resists this so that the well is not destroyed but I have also heard that the risk of making a terrible situation worse is considerable. Can you try to imagine the unforeseeable consequences of setting off a nuke down there? Good god, they can’t even get a diamond saw to work right and you propose setting off a huge explosion?
Ed,
Solar…only question; could it be profitable enough to invest in it regardless of small scale use. Obviously, companies have invested major bucks betting it will be profitable.
By the way, Senator Murkowski wanting to “make sure BP paid everything it was obligated to pay” is not incompatible with limiting increased oil industry liabilities in the event of spills.
There is a simple solution folks: blow up the well. True, no one will be able to drill there again, but it solves the problem of leaking oil. Unfortunately, our politicians are clueless, and it’s for sure BP won’t suggest this idea to them.
Jim,
I prefer the natural gas play to the solar play. Sadly, it would take years to get enough natural gas into our energy establishment to make it profitable. As for solar, the current technology doesn’t produce enough energy to use it on a large scale (it’s more like an energy “addition” than an actual solution).
BP and the Obama administration can lay claim to the following well known saying: “We have met the enemy and he is us!” The Obama administration has a full blown case of foot-in-mouth-disease as demonstrated by gross inexperience politically and in practicum. BP, guilty of many public relation sins (“I want my life back) and blunders in execution of safeguards has a front row seat with each other. It’s easy to say “should’ve, would’ve could’ve; I won’t bore and annoy those who have a different view than me and state the case.
What to do as investors?? I like Jim’s advice…look at possible legislative impact on clean energy stocks…LOOK…WAIT…RESEARCH. These are some of my favorite things.
James
I have been watching nat Gas remembering the drama Pickens created in 2008 for this. This guy has a lot of money, and I notice he hasn’t been saying much publicly. He is not the kind of guy to try a big campaign and then walk away. He’s on it to make money right now.
And watch over the next week or so. You will hear Obama talk about it, and then wish you were in it. He is NOT against it.
As the oil impacts states that are less and less politically “red”, you will start to see more talk like Jim’s column. And I don’t blame Obama for doing it. The political pressure for change won’t come from LA (it gets positive benefits such as revenue and jobs for its people in spite of the massive environmental damage it’s experiencing now) MS, or AL. It will come from Florida, Georgia and the Carolinas getting impact from this spill after it enters the Gulf Stream. Those states have none of the “pro” (jobs from oil industry, will get all of the “con” (environmental damage, tourism loss). So they’ll be mad as hell. As an added bonus, they’re in play in the 2012 election, unlike the Dixie states. Obama would be a stupid politician to not do something once the citizens of these Atlantic states start to see tar balls on their beaches.
The Pickens Plan is still “out there” and seems logical and viable, maybe that is why Obama ignores it. Natural Gas is the way to go, but maybe the name “gas” is not politcally correct.
Jim,
What is your thoughts on Natural gas companies like ECA with the potential new emphasis that way? Also with the Gulf disaster do you think that benefits land based(oil sands) producers like CVE? Last if we do move toward natural gas would that not benefit a company like CMI?
Thanks