Blog 2- "Oil, we can't live with it or without it"

It was said that there are only three certain things in life: death, taxes and BP dividends. This was said of course before BP’s disaster in April of 2010- the Deep Water Horizon oil spill off the Gulf of Mexico. An oil spill which took around 100 days to stop. The biggest oil spill in US history that harmed/ killed thousands of animals. How sure are you of your BP dividends now?

BP have equity capital, they have ordinary shares and ordinary shareholders. At this time this was an advantage for them because share issues do not have to be repaid; BP had no obligation to pay out dividends to the people invested in their company. It was said that one of the reasons for the oil spill was that BP were paying too much attention to only their shareholders and not concentrating enough on all other stakeholders; e.g. stakeholders involved with the safety of their oil rigs. With this in mind I can see how painful it must have been for BP to make a decision that would upset shareholders: to not pay out any more dividends for the rest of 2010. In my eyes, this was the only decision they could make. BP were set to pay out $10.6 billion in dividends and after being charged with a $20 billion compensation bill from president Obama, as well as all the money they were paying out to try and stop the spill and clean up the coast line, surely this would have been virtually impossible.

Although there are advantages of share issues, which boded well for BP at this time, there are also some disadvantages. There can be high costs associated with share issues: it is expensive to initially get onto the market with minimum costs of around £1.2 mil; also, the return required to satisfy shareholders can be high. Another disadvantage could be loss of control when shareholders are allowed voting rights within the company.  

For me, I think one of the hardest things for Tony Hayward (former CEO of BP) to have to watch, would be the company crashing and burning on the stock market. After watching the Deep Water Horizon quite literally crash and burn, ironically the day after celebrating 7 years accident- free on the rig. The company- which just two months previously had a value of around £100 billion and had been the biggest dividend payer of the FTSE 100 in 2009- now had a 50% drop in stock price, the uncertainty of the situation was causing BP to lose $12 million per minute.

This very clear reaction in the NYSE shows an efficient stock market. In a perfect market, all investors react at the same time; as soon as the news of the oil spill broke, investors should have been throwing away their shares as fast as possible. Some did. For some it took longer as the share price was dropping over a number of days. I know I would be selling my shares and would want nothing to do with BP at this time: they were really America’s enemy in the media for all the damage they were doing to the environment. The American media quickly stopped referring to them as BP and began calling the company British Petroleum (the company’s full name which no one ever uses), to almost say to the public ‘this is nothing to do with America, it’s British Petroleum, a British company has done all this damage’.

Although most people’s initial reactions were to sell their shares- as would have been mine- some people who thought ahead may have taken this opportunity to buy up some BP shares at low prices. BP returned to profit just a month after the oil spill was stopped, although for that year the company had ceased paying dividends, they would not be in a mess forever. Investors needed to assess the risk for their money and whether to stick it out with BP or take their money and run. If investors had stuck with BP they would have started to slowly see returns on their investments again not long after the crisis.

From this documentary I learned that companies should put focus into all stakeholders not just shareholders, this situation proved that not focusing on all aspects of the business can result in financial loss. Safety is important, especially in this type of company and should be placed more important than shareholders dividends. This documentary also shows the efficiency of the NYSE with the reaction to the disaster and the share prices of BP plummeting.