Investments: BP Shares A Bargain For Gulf And International Investors

CEO Tony Hayward was spotted at an Abu Dhabi hotel last week. Although BP remains tight-lipped over exactly who their CEO was meeting with, there was vague muttering about "important partners" from a spokesperson. That same mouthpiece also managed to fudge the cover story, confirming that Hayward was in town to speak to ADNOC, one of its current partners. While the disastrous Gulf oil spill created a significant financial liability for BP and hammered its share price, the bottom line is that the Gulf's own hydrocarbon riches, as well as BP's stake in those riches (as well as the 100+ other countries it operates in) ensure strategic investors remain plentiful. And that's why BP is shopping itself to the Gulf, aiming to securing a 'white knight' that can help fend off takeover bids while it mops up the Gulf Oil disaster. As may investors realize, there is cash to be found in Saudi Arabia, Qatar, Kuwait, and Abu Dhabi, and many SWFs as well as private consortiums, have been linked as potential partners. Late last week, UAE sources confirmed that an approach was made by BP Executives to Middle Eastern fund managers, further fuel fires surrounding this sensational story. Last week, BP's shares  jumped 3 percent on the news Middle East investors were circling, the first bit of good news shareholders have had in a while. So is BP still a good buy financially? Should investors be worried about BP's environmental record going forward? Where is BP's stock going in the medium- and long-term? Finally, should BP really be looking to Gulf investors to seal the financial fissure created by the spill?

No one can question how expensive the disaster in the Gulf of Mexico will be. The political fallout from the ruptured well has forced BP to establish a $20bn clean-up fund, and BP seems focused on raising about $10bn of that from non-core asset sales. But even when one reviews which assets might be lost in such a liquidation, it is important not to understate the collective, intrinsic value of an asset-rich company like BP. Whether or not you like or approve of BP, BP's assets are enormous. That is not likely to change in the near future, despite the company being liable for one of the biggest environmental disaster in human history. While the asset pool is large, it is also prudent to focus on the most important element influencing investment valuation: the valuation of its potential liabilities. For BP, the liabilities from the spill are threefold: the deterioration in the company's relationship with the US government, the cleanup operation itself, and the civil claims BP will face. Furthermore, there are significant short-term concerns about the impact an ongoing moratorium on deep-water drilling may have on US operations and oil supply. Even if the moratorium is lifted, Moody's, the global financial rating agency, predicts that although deep water drilling is "unlikely to come to permanent halt", the costs of drilling in the Gulf will likely rise "dramatically" once the moratorium ends.

While such increases are not good news for any oil companies or energy investors, the US is just a part of the picture for BP, which has interests in more than 80 other nations. While stricter conditions within the US may change the way energy companies operate within US waters, it cannot be concluded that such a disposition will be carried over to offshore drilling in other parts of the world including Brazil, the Caspian or West Africa. Currently, the total estimated liability for the Gulf Spill is projected around $33bn, including potential clean-up costs and associated civil claims. As a reference point, on April 19 BP was valued at about $180bn, a reduction in approximately $90bn from its previous market position. The bottom line is that BP's assets have not significant changed following the disaster. Yes, the moratorium, has weakened relationship with the US, but those relationships can be repaired in due course. Even when the potential liabilities are tacked on to to today's share price, there's still a differential of around $60bn between that value and the pre-Deepwater price. With that in mind, there remains strong incentives for anyone with the money to invest. Since the spill, BP has been challenged and faced criticism, but all indications point to the fact that there is no real impetus for BP to change its approach in the global market place. Yes, BP did not come out exactly the same company as it went in, but the fact is that BP shares are still a bargain, and BP remains a critical driver of the global energy market. I would bet that astute industry players in Abu Dhabi, Riyadh, Doha and Kuwait City, to whom BP is holding out its has, likely won't loose sight of the company's true value, and will soon be investing. Whether this investment is good news for the environment or society is merely a subjective afterthought.