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If you still hold BP stock, cut your losses and get out

BP has already far eclipsed Goldman Sachs as the most hated company in America.

Seeking Alpha

June 02, 2010

BP’s worst-case scenario from a few weeks ago is now a reality, and things are still going downhill fast. Let’s first review the latest facts, and then discuss their significance for BP shareholders.

  • As of last Friday, BP’s global market capitalization (not just on the NYSE) had fallen by 25 percent, or around $30 billion, since April 20th. This does not include Tuesday’s BP crash of 15 percent on the NYSE and 13 percent on the LSE.
  • BP is now under both civil and criminal investigation by the U.S. Attorney General.
  • British financial pundits are now openly discussing the possibility that BP will be sued and fined into insolvency, or become the victim of a hostile takeover due to its plummeting share price. Some have also suggested that the company could find itself banned from operating in the U.S.
  • Even if it survives, BP will likely be unable to pay dividends for years.
  • Coast Guard Admiral Thad Allen has just revealed that BP has given up trying to plug its Gulf of Mexico leak. Some oil may yet be sucked off via temporary measures, but a permanent solution will have to wait until August at the earliest.
  • After claiming for weeks that BP’s damaged riser was releasing just 5000 barrels per day, Washington has fessed up that the leak is spewing between 12,000 and 19,000 barrels per day, although many scientists not involved with this fiasco are saying that it could be much more. (The above figures refer to leaked crude oil alone, not the natural gas that comes with it).
  • Going by the official estimates, BP has now released between 480,000 and 760,000 barrels of crude into the Gulf, and is on track to spew up to 2.2 million barrels by mid-August, assuming the present best-case scenario that the leak can be stopped entirely at that time. This will be up to nine times worse than the Exxon Valdez disaster.
  • BP has already spent over $1 billion on the cleanup and mitigation effort, with no end in sight.
  • BP has already far eclipsed Goldman Sachs as the most hated company in America.
  • Due to the unprecedented, massive use of chemical dispersants, hundreds and possibly thousands of cubic (not square) miles of sub-surface Gulf water have been turned into oil-contaminated dead zones. No one can reliably guess the ecological and economic effects of this disaster. In terms of liability and political risk, BP is in totally uncharted territory.

So those are the latest facts. Now, what does it mean for the stock?

BP shareholders had ample warnings—some of them posted right here on Seeking Alpha—that continuing to hold BP stock is not advisable. Having missed the warning signs, some now think that buying the latest “dip” (to put it mildly) is a good idea.

What everyone should understand is that given current trends and legal developments, this company’s shares could go almost to zero, just as happened with some of the financials as well as GM back in 2008. Just as the “impossible” and “inconceivable” happened then, so could it happen now in the case of BP.

Unless you are a volatility day-trader, if you still hold BP stock, now is the time to cut your losses and get out. It’s still not too late, but the window is closing.

Disclosure: No current position in any stock or stock mutual fund, whether long or short

About the author: Jacob Dreizin

Jacob Dreizin has six years of analyst, project management, and external relations experience in the Federal bureaucracy, Congress, and the lobbying and government consulting sectors, with a focus on budgetary and economic issues. He is also an enlisted veteran of the U.S. Army. He can be… More

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