Anadarko is binary option on BP incompetence

June 21, 2010

Rival oilmen have every reason to cast BP as a rogue. But none more so than Anadarko, its silent partner in the leaking Macondo well. If BP is proven grossly negligent, Anadarko is absolved of liability. If that doesn’t happen, it could face crippling costs.

Anadarko only invested in the Macondo well in December 2009 after drilling had already started. It had not a soul on the doomed rig and had not been consulted about the well design. Yet its 25 percent stake has ensured the drubbing of a lifetime. Even after accounting for the slide in peers’ valuations, investors have sliced close to an extra $13 billion off Anadarko’s market capitalization, leaving it worth some $22 billion.

That middle ground, though, doesn’t reveal the dilemma facing investors. The chances are, either Anadarko will eventually escape practically scot free, or its share of the bill could end up being life-threateningly large.

To bring its tab down near zero, Anadarko needs to prove the accident stemmed from “gross negligence or willful misconduct” on the part of BP. Then it can legally escape stumping up its share of the cleanup cost. That determination would also make it easier for politicians to justify lifting the deep sea drilling ban — a move that would remove another cloud hanging over Anadarko.

If instead Anadarko’s darkest fears are realized, it could be on the hook for $15 billion or more, assuming the cost of the disaster tops $60 billion as research by Raymond James suggests. That bill is not the only worry. As the largest independent explorer in the deep waters off the U.S. coast, Anadarko would be a leading casualty of an extended freeze on drilling — and that would be more likely if, instead of BP being fingered as the only miscreant, practices across the industry were found wanting.

That could seriously stretch the company’s resources. Its cash pile of $3.7 billion could easily be gobbled up, along with the expected $4.2 billion of cash flow Raymond James expects this year.

Short-term, the uncertainty will surely weigh on Anadarko. Longer-term, its shareholders will be hoping for more evidence of BP’s failings. After all, the company looks much like a binary option on the UK oil giant’s incompetence.


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Than you Christopher,

In the light of what hapenned in Nigeria in the last decades living near huge oil spills.

Laws un US is quite different than those of Nigeria.

In the last few years, 175 thousands children dies EACH YEAR of pulmonary diseases. There is a consensus among Public Health Officers, that the main cause of these diseases (Clean-Up team did not have N95 masks and were subjects of intoxication from the fumes) is the oil spills.

I would be surprised that all these ”joint venture” will not be targets to solve the Public Health Costs on top of everything else.

Seems some bad times ahead on these former or actual conglomerates.

Posted by Toubib | Report as abusive

Who is going to be willing to partner with Anadarko now that they a) hung their JV partner out to dry and b) have this massive financial liability hanging over their head in the meantime. Already it’s clear that BP probably won’t join up with them again, and there’s not that many oil majors out there to form consortiums with.

Exactly what liability does a JV partner take on if not their share of the costs of an accident? Does this hinge on the difference between “negligence” and “gross negligence”? I seriously doubt if BP was operating too far out of the bounds of accepted industry standards (which may well have been lax), and willful misconduct will be difficult to prove w/o a smoking gun.

In short – I’d steer clear of Anadarko, and maybe look at companies that can scoop up their assets.

Posted by HotPanini | Report as abusive

Let’s see.

Halliburton poured the cement casing. Hackett is on the Board of Directors for Halliburton.

Question: How much does two and two make?

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Posted by thomasgalvin | Report as abusive