Tuesday, May 4, 2010

Comparing BP and Exxon's spill-related stock reactions (BP,XOM)

BP shares are among the up few stocks trading higher, up 1.3% today, a rarity in a sea of red.  Investors are jumping on the 6.4% dividend yield.  The biggest question there is how safe is that dividend?  The company is "partially" self-insured through a  subsidiary, and it might also have some policies through Lloyd's.  Big cash costs could force management to reduce the dividend, but it would probably prove temporary.

I'd reckon BP is regretting this decision under "contingent liabilities"

"The group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because external insurance is not considered an economic means of financing losses for the group. Losses will therefore be borne as they arise rather than being spread over time through insurance premiums with attendant transaction costs. The position is reviewed periodically."

Below is a comparison of the stock reactions to the Deep Horizon disaster, as well as the Exxon Valdez spill from 1989.  (Exxon shares are "as they were," rather than adjusted for the many share splits since then)

Speaking of the Valdez, some might be surprised to know the ole' girl is still sailing the seas, under the new name Dong Fang Ocean:

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