BP Ponying Up, Shares Are Down

After the Deepwater Horizon oil rig explosion killed 11 and led to the biggest oil spill disaster to date, BP (NYSE:BP) is finally ponying up in a $7.8 billion settlement.

A judge ruled on the class-action lawsuit against BP that the company would pay $7.8 billion divided between all the people who agreed to a settlement. However, some people did not agree, as they don’t believe the money would be enough. The oil company also faces criminal investigations and will pay billions more in fines and claims, with the fine from the U.S. Clean Water Act potentially reaching up to $17 billion.

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CHEAT SHEET Analysis: Will all this lost money drop shares?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. When a company doles out billions of dollars it will never seen returned, that’s certainly a negative catalyst. However, one-time charges don’t always have long-reaching effects.

The bigger issue at play here may be that BP’s reputation has been marred throughout the U.S., especially the Gulf region. Two employees are facing 11 counts of manslaughter, the U.S. government has banned BP from getting any new oil contracts within the country, and it still has further court cases pending. The real cost for BP could be a loss of business in the future.

BP shares are down significantly from where they were before the explosion, and though they bounced slightly back slightly several months after the incident, they are still following a downward trend. The decline could gain momentum if courts find BP had willfully deceived investors by not accurately disclosing how much oil was leaking from the pipeline.

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