It is now well over four years since the fatal Deepwater Horizon disaster, and there is still no way out for BP. Last week, US District Judge Carl Barbier found it guilty of gross negligence, opening the way for another $18bn or so in compensation claims. Management hadonly set aside another $3.5bn.
This new threat comes on top of the $43bn BP has already paid, making this one of the largest class action lawsuits in US history.
The two US companies that worked on the Deepwater rig, Transocean and Halliburton, suffered only minor scratches, but British Petroleum keeps on getting plugged.
Despite that, it is still possible to build a case for buying the London-listed oil major.
Invest Like Brian
In June, BP hit a 52-week high of 526p. Today, you could snap it up for 463p. Thats a discount of 12%. Theres a good reason for that discount, as we all know, but if you like buying good companies on bad news, BP could be for you.
You wont be the only buyer out there. BPs chief financial officer Brian Gilvary has just spent more than 233,000 on the companys stock, picking up 50,000 shares at around 467p each.
He clearly thinks he has spotted an opportunity. Why?
First, there is the prospect of an appeal. BP strongly disagrees with districtdecision, and has promised to take its case to the US Court of Appeals. Claims that it was also guilty of wilful misconduct werent supported by evidence at the trial, it said.
BP investors confidence in the US legal system wont be high right now, but at least there is some hope.
Especially since todays price largely reflects that $18bn potential fine. And remember, that massive figure is the worst-case scenario. If the fine is trimmed, there is scope for some share price upside.
The actual financial impact of the ruling could also be delayed, because BPs appeal could take some years.
Even if BP does have to shell up, any penalties may be dragged out over several years, easing the damage to cash flow, and that dividend.
Gilvary insists it is financially strong enough to fund the extra penalties, but if youre buying now, you have to accept that todays dividend and share buyback programme are on the line.
Thats a shame, given that it has steadily recovered lately, and currently yields 4.9%, covered 3.3 times.
There is also the chance that BP will settle up, one option Al Pacino didnt have. In that case, the share price could spike. There is always something attractive about cutting your losses and moving on.
It will also make the future a lot clearer for investors.
At 9.7 times earnings, BP will still tempt many. Especially since fellow oil major Royal Dutch Shell, relatively untainted by scandal, trades at nearly 16 times earnings.
If you are tempted, remember that BP faces another superpower problem, due to its 20% stake in Kremlin-controlled Rosneft. This problem could also run and run. As Hollywood mobsters and Ukrainian politicians have learned, ceasefires are there to be broken.
If you want more certainty to your income stream, BP isnt for you.
Clearly, there are a lot of uncertainties to investing in BP. But for far-sighted investors, many of those uncertainties are in todays price. If you want BP in your portfolio, now could be the time to buy it.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.