5 ms·

BP Cancels Dividend to Set Aside $20 Billion for Spill Costs

41 points by jackfoxy 16y ago

rradu 16y ago
This was the logical thing to do to avoid more bad press. But greed often trumps logic. I'm surprised they did this.
- carbocation 16y ago
  From my read of Obama's address last night -- and the Congressional discussion of precisely $20 billion over the last couple of days -- this was not really optional for BP. They seem to have been given the option to do this willingly, or to do so unwillingly. The choice between those two is clear. Forgoing payment of dividends, given this large outlay, seems to be a logical way to keep a cash buffer.
  - ZachPruckowski 16y ago
    Yeah, I mean, they could wait until the federal government slaps them with the fines ($4k or so per barrel) and then try to fight those fines in court, but there's not a jury in the USA who's going to believe BP's numbers over whichever experts the government picks, and it's not like BP can claim there's no oil spill. On the civil front, any negligence or shenanigans at that well before April 20th blows straight through the liability cap. There are a number of stories just below the mainstream media radar that I've see talked about on TheOilDrum and other places that, if there's any truth at all to them would obliterate the liability cap. If they think they can't win that point at trial, then they're best off just paying upfront instead of fighting. Again, good luck finding a jury who won't use the flimsiest excuse to crush that liability cap.
    - anamax 16y ago
      The jury isn't the last word. How much of the Exxon Valdez judgement survived appeals?
- timwiseman 16y ago
  It is hardly greedy for a company to pay dividends. Remember that many retirement funds and some individual investors depend on dividends like this and that certain types of funds will be required by their charters to sell a stock that ceases to pay dividends.
  - bhiggins 16y ago
    Remember some people relied on the gulf for their livelihoods.
    - timwiseman 16y ago
      Very true, and what has happened to the Gulf and those people around it is absolutely tragic. The environmental damage is astronomical in addition to the economic damage. Further, I agree that BP should pay for it fully, and that doing so will (and should) affect those who invested in it. With that said, paying dividends is simply not greedy. It is rewarding and supporting those who invested in them, including retirement funds and individuals, many of whom rely on those dividends that have been quite stable for some time now. Treating your shareholders well is simply not greedy.
      - tptacek 16y ago
        People who invest in companies aren't entitled to a reliable return. They earn returns by accepting risk. When you invest in a company that funds and coordinates offshore oil drilling the in Gulf of Mexico, you accept the risk that failure to comply with safety standards will cost you all of your returns.
  - DarthMark 16y ago
    It's sad that some investors & retirement plans will get hit... On the other hand, when you invest in a company, you're not just getting a share of the profits, but you also get a share of the liability as well.
- ErrantX 16y ago
  This was the logical thing to do to avoid more bad press in the USA. It's not going to go down too great here in the UK (either for Obama or BP) EDIT: I should point out, for those that don't know, BP dividends are pretty important to a big portion of UK pension funds. I'm not 100% certain how exactly this affects them, but it is not good (they have been teetering for a while due to the financial crisia as well). BTW, yes, I agree it is silly we rely on them so much. The Times reported the other day that this could wipe out up to 1/3 of UK pension funds, and Robert Peston is was waffling about the fact it could be enough to collapse parts of the economy - I don't actually subscribe to that (I ran some of their numbers and it's nowhere near that bad IMO) but if you get Brits glowering at you for a few weeks it might be because they believed it :)
  - skushch 16y ago
    There are quite a few public pension funds in US with the same issue: http://www.marketwatch.com/story/obama-aims-at-bp-hits-state-pensions-2010-06-09 http://www.marketwatch.com/story/obama-aims-at-bp-hits-state...
  - jonknee 16y ago
    It's not a good situation either way, but it's not real fair of the retirees to take dividends from a company that just destroyed the livelihoods of tens of thousands of people. BP is obligated to take care of its mess and that should come before paying shareholders. It sucks, but that's business. Stocks aren't risk free, even big dividend paying ones.
    - ErrantX 16y ago
      Yeh I know. Tbh I think they could easily pay the diidend and the clean up bill. They aren't going to need $20bn tomorrow. Also; collapsing pension funds affects the unretired too. Potentially it could leave millions in the cold - so that complicates it more. And I would point out it has not been established who was at fault (though clearly BP must pay)
hasanove 16y ago
It is amazing to see how US president can effectively demand something of a private company. No courts needed anymore.
- tptacek 16y ago
  You're right: you don't seem to need courts if you surrender immediately, which is what BP (wisely) appears to have done here.
- bhiggins 16y ago
  Popular opinion played the biggest role. [edit: spelling]
  - scw 16y ago
    s/ll/le/
- faramarz 16y ago
  What if the actual cost ends up ballooning past $20bn? perhaps there was a backroom agreement to cap the liability costs?
  - timwiseman 16y ago
    President Obama in his speech specifically said this was not a cap. Also, even if the administration did hypothetically agree this was a cap it would likely not be binding on the courts without further Congressional action when people brought the lawsuits.
  - Nelson69 16y ago
    Yeah, I've been waiting for that to leak out. $20bn seems like a lot for PR, why wouldn't you fight that? Unless there is some sort of cap or some reason. What about the folks taking the pay outs too? I'm sure there is some paperwork to sign before you get a cheque. Looking at like the Iraq reconstruction funds, I expect that $20bn to be spent in about a month, a lot of folks won't be paid, we won't know where the money goes and it's just going to be gone.
aresant 16y ago
Just look in the mirror next time you're at the filling station for a minute to remind yourselves why we're in this mess . . .
- bugmenot 16y ago
  Why? Will there be a broken blowout preventer behind me? It's not my fault that BP or their sub-contractors ignored all safety procedures.
- lurkinggrue 16y ago
  Look, I just need one more tank as I try to get my shit together. Shakes I can quit anytime I want.
  - mkramlich 16y ago
    Buy a Prius Hybrid. It's like half-quitting.
- earnubs 16y ago
  Our use of oil no more explains the Deepwater Horizon accident than our use of fertiliser explains the Texas City Disaster.
- proee 16y ago
  That's not really true. Just because you consume a product does not mean you share the responsibility of someone who produces it with negligence. However, if this topic was about global warming and C02 emission, then yes you could blame everyone who uses fossil fuels...
  - aresant 16y ago
    In my lifetime nearly every major environmental disaster, major war, and major economic crisis has been tied to oil. Not ENERGY, but OIL. American's (myself included) are too terrified of losing our cars or making oil unaffordable to demand reasonable regulation on the industry or investment in real alternative technologies. This has nothing to do with global warming & C02. That's just the icing on the cake.
tokipin 16y ago
here is the video of the president's remarks after the meeting. he describes some of the details about the account: http://www.youtube.com/watch?v=tnbF99nYWQQ http://www.youtube.com/watch?v=tnbF99nYWQQ
chasingsparks 16y ago
The canceling of the dividend was inevitable, contrary to news stories from last week. BP is worth a lot more than the cleanup costs, but they rightly fear cash flow problems. That's how profitable companies go bankrupt -- they run out of cash. Paying out a cash dividend during a time where near-term cash demands cannot be calculated would be crazy.
tocomment 16y ago
Why didn't bp stock go down today? I'd think ending dividends would be a huge deal.
- akronim 16y ago
  Since the probability of this was high, it would already be factored into the current price. The announcement just confirmed it.
- d2viant 16y ago
  When a company pays out a dividend, it's stock price drops by an amount equal to that payment. Aside from the payments it will make for cleanup, it's not like BP is making any less money after this announcement, in fact it will now have an extra $7.9 billion that won't be distributed to shareholders. Those withheld dividend payments will accumulate into a large amount of cash on its books and that cash will get factored into the share price, so all things considered it should boost the price of the stock. The canceling of the dividend was out of political necessity, not financial.
mkramlich 16y ago
If BP truly carries out this out, it sounds like good news to me.

41 points by jackfoxy 16y ago

rradu 16y ago

This was the logical thing to do to avoid more bad press. But greed often trumps logic. I'm surprised they did this.

carbocation 16y ago
From my read of Obama's address last night -- and the Congressional discussion of precisely $20 billion over the last couple of days -- this was not really optional for BP. They seem to have been given the option to do this willingly, or to do so unwillingly. The choice between those two is clear. Forgoing payment of dividends, given this large outlay, seems to be a logical way to keep a cash buffer.
- ZachPruckowski 16y ago
  Yeah, I mean, they could wait until the federal government slaps them with the fines ($4k or so per barrel) and then try to fight those fines in court, but there's not a jury in the USA who's going to believe BP's numbers over whichever experts the government picks, and it's not like BP can claim there's no oil spill. On the civil front, any negligence or shenanigans at that well before April 20th blows straight through the liability cap. There are a number of stories just below the mainstream media radar that I've see talked about on TheOilDrum and other places that, if there's any truth at all to them would obliterate the liability cap. If they think they can't win that point at trial, then they're best off just paying upfront instead of fighting. Again, good luck finding a jury who won't use the flimsiest excuse to crush that liability cap.
  - anamax 16y ago
    The jury isn't the last word. How much of the Exxon Valdez judgement survived appeals?
timwiseman 16y ago
It is hardly greedy for a company to pay dividends. Remember that many retirement funds and some individual investors depend on dividends like this and that certain types of funds will be required by their charters to sell a stock that ceases to pay dividends.
- bhiggins 16y ago
  Remember some people relied on the gulf for their livelihoods.
  - timwiseman 16y ago
    Very true, and what has happened to the Gulf and those people around it is absolutely tragic. The environmental damage is astronomical in addition to the economic damage. Further, I agree that BP should pay for it fully, and that doing so will (and should) affect those who invested in it. With that said, paying dividends is simply not greedy. It is rewarding and supporting those who invested in them, including retirement funds and individuals, many of whom rely on those dividends that have been quite stable for some time now. Treating your shareholders well is simply not greedy.
    - tptacek 16y ago
      People who invest in companies aren't entitled to a reliable return. They earn returns by accepting risk. When you invest in a company that funds and coordinates offshore oil drilling the in Gulf of Mexico, you accept the risk that failure to comply with safety standards will cost you all of your returns.
- DarthMark 16y ago
  It's sad that some investors & retirement plans will get hit... On the other hand, when you invest in a company, you're not just getting a share of the profits, but you also get a share of the liability as well.
ErrantX 16y ago
This was the logical thing to do to avoid more bad press in the USA. It's not going to go down too great here in the UK (either for Obama or BP) EDIT: I should point out, for those that don't know, BP dividends are pretty important to a big portion of UK pension funds. I'm not 100% certain how exactly this affects them, but it is not good (they have been teetering for a while due to the financial crisia as well). BTW, yes, I agree it is silly we rely on them so much. The Times reported the other day that this could wipe out up to 1/3 of UK pension funds, and Robert Peston is was waffling about the fact it could be enough to collapse parts of the economy - I don't actually subscribe to that (I ran some of their numbers and it's nowhere near that bad IMO) but if you get Brits glowering at you for a few weeks it might be because they believed it :)
- skushch 16y ago
  There are quite a few public pension funds in US with the same issue: http://www.marketwatch.com/story/obama-aims-at-bp-hits-state-pensions-2010-06-09 http://www.marketwatch.com/story/obama-aims-at-bp-hits-state...
- jonknee 16y ago
  It's not a good situation either way, but it's not real fair of the retirees to take dividends from a company that just destroyed the livelihoods of tens of thousands of people. BP is obligated to take care of its mess and that should come before paying shareholders. It sucks, but that's business. Stocks aren't risk free, even big dividend paying ones.
  - ErrantX 16y ago
    Yeh I know. Tbh I think they could easily pay the diidend and the clean up bill. They aren't going to need $20bn tomorrow. Also; collapsing pension funds affects the unretired too. Potentially it could leave millions in the cold - so that complicates it more. And I would point out it has not been established who was at fault (though clearly BP must pay)

hasanove 16y ago

It is amazing to see how US president can effectively demand something of a private company. No courts needed anymore.

tptacek 16y ago
You're right: you don't seem to need courts if you surrender immediately, which is what BP (wisely) appears to have done here.
bhiggins 16y ago
Popular opinion played the biggest role. [edit: spelling]
- scw 16y ago
  s/ll/le/
faramarz 16y ago
What if the actual cost ends up ballooning past $20bn? perhaps there was a backroom agreement to cap the liability costs?
- timwiseman 16y ago
  President Obama in his speech specifically said this was not a cap. Also, even if the administration did hypothetically agree this was a cap it would likely not be binding on the courts without further Congressional action when people brought the lawsuits.
- Nelson69 16y ago
  Yeah, I've been waiting for that to leak out. $20bn seems like a lot for PR, why wouldn't you fight that? Unless there is some sort of cap or some reason. What about the folks taking the pay outs too? I'm sure there is some paperwork to sign before you get a cheque. Looking at like the Iraq reconstruction funds, I expect that $20bn to be spent in about a month, a lot of folks won't be paid, we won't know where the money goes and it's just going to be gone.

aresant 16y ago

Just look in the mirror next time you're at the filling station for a minute to remind yourselves why we're in this mess . . .

bugmenot 16y ago
Why? Will there be a broken blowout preventer behind me? It's not my fault that BP or their sub-contractors ignored all safety procedures.
lurkinggrue 16y ago
Look, I just need one more tank as I try to get my shit together. Shakes I can quit anytime I want.
- mkramlich 16y ago
  Buy a Prius Hybrid. It's like half-quitting.
earnubs 16y ago
Our use of oil no more explains the Deepwater Horizon accident than our use of fertiliser explains the Texas City Disaster.
proee 16y ago
That's not really true. Just because you consume a product does not mean you share the responsibility of someone who produces it with negligence. However, if this topic was about global warming and C02 emission, then yes you could blame everyone who uses fossil fuels...
- aresant 16y ago
  In my lifetime nearly every major environmental disaster, major war, and major economic crisis has been tied to oil. Not ENERGY, but OIL. American's (myself included) are too terrified of losing our cars or making oil unaffordable to demand reasonable regulation on the industry or investment in real alternative technologies. This has nothing to do with global warming & C02. That's just the icing on the cake.

tokipin 16y ago

here is the video of the president's remarks after the meeting. he describes some of the details about the account: http://www.youtube.com/watch?v=tnbF99nYWQQ http://www.youtube.com/watch?v=tnbF99nYWQQ

chasingsparks 16y ago

The canceling of the dividend was inevitable, contrary to news stories from last week. BP is worth a lot more than the cleanup costs, but they rightly fear cash flow problems. That's how profitable companies go bankrupt -- they run out of cash. Paying out a cash dividend during a time where near-term cash demands cannot be calculated would be crazy.

tocomment 16y ago

Why didn't bp stock go down today? I'd think ending dividends would be a huge deal.

akronim 16y ago
Since the probability of this was high, it would already be factored into the current price. The announcement just confirmed it.
d2viant 16y ago
When a company pays out a dividend, it's stock price drops by an amount equal to that payment. Aside from the payments it will make for cleanup, it's not like BP is making any less money after this announcement, in fact it will now have an extra $7.9 billion that won't be distributed to shareholders. Those withheld dividend payments will accumulate into a large amount of cash on its books and that cash will get factored into the share price, so all things considered it should boost the price of the stock. The canceling of the dividend was out of political necessity, not financial.

mkramlich 16y ago

If BP truly carries out this out, it sounds like good news to me.