BP stock crashes; oil giant trading below book value

It was a bad day for most stocks today, but it was a bloodbath for embattled oil giant BP.

Shares of BP dived 16 percent today, driving the stock price to below $30 per share, the worst drop on record for the company. The British energy giant closed at $29.20 per share. More ominously, investors and traders rushed to dump their BP shares: Trading of the stock occurred at four times normal volume today.

As a result, the asset-rich company is now trading for less than its book value, which is essentially all the assets it has — oil fields, oil rigs and so forth — minus intangible assets and liabilities.

In English, this means that investors and traders think that the company is now actually worth less than all the hard assets it owns. That’s a confidence trade.

The company has now lost a staggering half of its value since the late-April explosion of the Deepwater Horizon rig and subsequent oil spill. You calculate a company’s value — called its market capitalization, or market cap — by multiplying its stock price by the number of outstanding shares.

Today, BP is worth $91.4 billion. In mid-April, the company was worth $180 billion. Wow.

What’s next? Earlier this week, BP announced it would pay its first-quarter dividend, even though there is plenty of political pressure in America for the company to suspend its dividend and use the cash to clean up the spill. BP chief executive Tony Hayward says his company has plenty of cash to do both.

There’s other speculation that the company will declare bankruptcy or get taken over by another company. Both seem pretty far-fetched to me. BP is still a massively profitable company with a low price-to-earnings ratio (especially now!). It’s a going concern as a company.

And even though the quickly dropping price tag makes the company a potential takeover target, you’ve got two problems: a) There aren’t that many companies that can write a check for $91 billion and b) you wouldn’t be writing a check for $91 billion. There are potentially billions of other dollars worth of uncertain liabilities associated with this oil spill — legal settlements, fines and so forth — you’d also be buying.

By Frank Ahrens  |  June 9, 2010; 5:10 PM ET

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