The suggestion that BP could be going bust seems to me to be the final straw in what has clearly been a tragic situation. But our job as investors is to look through the political rhetoric and to try to get a grip on the underlying business fundamentals.  The latest suggestion that BP could go bust saw its share price in the US hit a 14 year low and sent it down to 350p at today’s (10 June 2010) UK opening.  This values BP at around $90 billion.  But BP has 18 billion barrels of ‘conservatively registered’ proven reserves, which means this oil is valued at just $5 per barrel and it completely ignores the estimated 63 billion barrels of ‘probable’ reserves.

BP is important to the US
BP is the largest producer of oil and gas in the US and is one of the US’s largest employers so it is not in the interests of the US to push it to the brink. And while the politicians are demanding a dividend suspension they seem to be overlooking the fact that some 40% BP shareholders are based in the US.

The dividend
It is the risk that the dividend will be suspended that has driven a number of European investors to sell, which has contributed to the fall in the price. But if it happens, it should only be a temporary measure.

The costs of the clean up will be spread
The costs of the clean up continue to mount and gyrate wildly depending on who you ask.  In reality they will only really start to become properly quantifiable once the leaking well has been capped.  But we should remember that while this will be a very big number it will be spread over many years as the range of claims are processed. Indeed, ExxonMobil were still dealing with claims 20 years after the Exxon Valdez ran aground in Alaska.

We don’t normally like big oil
We don’t normally like big oil in our growth funds because they have such limited growth potential, which has benefited the UK Equity Fund. But with valuations where they are we are taking a serious look at BP.