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Why You Shouldn’t Let BP plc Look After Your Money

oil rig

BP (LSE: BP) (NYSE: BP.US), as they say, is having a shocker. I wonder if its Public Relations team is getting any sleep at all right now?

Last week it was revealed the oil and gas giant could face up to $18 billion in Clean Water Act fines. Judge Carl Barbier ruled on Thursday the company had been “grossly negligent” over the Gulf of Mexico disaster in 2010. The explosion at the Deepwater Horizon oil rig killed 11 men and sent millions of barrels of oil into the sea. There was further tragic news last week when it was revealed that a worker had died in a fall on BP’s Unity platform in the North Sea.

The company’s stock price tells the story over the past couple of decades. There was a steep rise in the share price from 1995 to 2003. A sharp drop followed, then the share price recovered to its highs in 2006. Life has never been the same since. There was a lot of volatility in the stock price right up until 2010, when it plummeted. The share price to this day has never come close to that 600p level. Even late last week, following the court ruling, it took another hiding, down close to 6 per cent.

Headache for management

Who could ever forget those infamous words from former BP CEO, Tony Hayward? He stood in front of news cameras in 2010, after the disaster, and said, “I’d like my life back.”. Of course, he later apologised for saying something so insensitive… But after 11 deaths, and an environmental disaster, it was too late. And then there was further evidence of the company’s irresponsible management last week when the public was told that BP had indeed been reckless in its actions leading to that disaster.

The tragedy has produced an unfortunate legacy for the oil and gas producer. One part of that legacy is reputational damage, especially when workers continue to die on its oil rigs. The second is one of cash flow. Given today’s ruling, total costs for BP could blow-out to $43 billion dollars, according to the Telegraph. And while BP has made attempts to limit the damage to its income, the appeals court (Fifth Circuit Court of Appeal, Louisiana) effectively put an end to that back in May ordering BP to continue on paying damages.

Not a bad stock

You wouldn’t invest in BP for a short-term capital gain. The share price isn’t rising in a hurry and the publicity around the company is far too negative at present. The price of oil has also been doing poorly in recent months. You might, however, invest in the stock for its dividend. The yield fell off a cliff after the 2010 disaster but has since proved stable and even recovered somewhat. It’s currently around 5 per cent.

Still wouldn’t go there

A rule of thumb is that it may be unwise to invest in a company that’s tied up in litigation and the courts. The reason simply is that rather than your money going into building the company, it’s going towards saving the company. Now while I absolutely want to see the victims of the 2010 explosion receive every penny they are entitled to (and I expect they will), it doesn’t seem prudent to willingly throw your money behind a company when you know part of your investment won’t be directed towards growing the company. It’s a risk and a penalty that the company’s existing and long-term shareholders have to wear.

I can’t see that BP is in a position to look after your money completely and unreservedly… which is what you deserve.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.