BP Revisited – Not SRI, or a Buy, At Any Price?
Please look for other Gulf oil spill related posts today at all the great Justmeans News locations.
An earlier post here suggested BP stock might, SRI or not, be a buy at $51, based on the decline in market cap in relation to an estimated spill liability of $14 Billion.Â Crow is on today's menu, and not because the price has slipped to $46 (as of May 13) - all other things being equal, that would be a reason to buy more â but because this is an SRI blog that somehow missed the SRI boat..
What has changed are the available facts â specific facts that go to the back of the envelope value calculation, but more importantly, two specific facts that go to management integrity, the core of SRI and a good first place to look even if you are all about the alpha.
One is the news that the volume of oil spilling from open hole left by the explosion of the Deepwater Horizon may exceed BP's published estimates by a factor of ten.Â This may move that $14 Billion clean up cost guesstimate from the top of the reasonable range to the bottom.Â More important, why wasn't the original BP estimate on rate of spill accompanied by more warning.Â Sure, everyone understands âestimateâ is nothing like a certainty, especially when your trying to assess a catastrophe in very deep water.Â However, a factor of ten is a big miss.Â Regardless of the actual spill rate, which is still uncertain, if the original BP estimates were potentially off by a factor of ten or more, this deserved a lot more public attention than BP gave it.Â The original post gave kudos to BP management for taking responsibility, looks like an SRI demerit may have been in order.
The other is regulatory history, history that's gained more attention in the past few weeks, sad history that repeats itself over and over â the regulated industry co opts the process and then does a less than admirable job of regulating itself.Â Maybe it's too much to expect BP to be a saint in a sinner's world and we should focus on the regulators, but BP certainly gets no SRI gold star here either. As per usual, it's not hard to envision the SRI failure translating into financial loss â if big oil was able to avoid effective regulation, how many more expensive disasters await?
Speaking of regulators,Â Cass Sunstein will be all over the news for the next week.Â Behavioral economics seems to have taken over all of social science, and even the popular imagination with outlets like Freakonomics and Outliers.Â Incentives and disincentives are useful tools, but BP seems like a reminder of an older lesson for regulators â show up and do your job, and keep doing it even after the glare of the last crisis is forgotten.Â
Photo Credit: That Goatskin Bicycle Moment