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.
Due to already passed laws, BP owes somewhere in that neighborhood in fines and royalties on the spilled oil, before we even begin to talk about liabilities and negligence and punitive stuff. Like, even if the oil never touched an animal or shore and never caused economic hardship on the Coast, just because it hit the water, they owe billions of dollars.
Agreeing to a payment system now, ahead of sorting out the exact fines, is a PR win for both BP and Obama.
i don't see how this has anything to do with law, beyond the mechanics of setting up an account of this kind. BP could have refused
if popular opinion wasn't so strongly against BP, the president's demands would have been meaningless, so this isn't about the president and his "powers," but about the kinds of things you have to do when everyone is rightfully pissed at your company
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.
$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.
Or when you eat your meat raised on corn raised on petroleum based fertilizer. Or when you realize that 70% of your waste is plastic. Or when you realize that the reason 'they don't build 'em like they used to' is because they build 'em all out of plastic nowadays or other petroleum derivatives.
Filling up your car is the least of the problems. You can take transit tomorrow. You can't stop eating.
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.
>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.
Let's save the America self-hate for now. We're not the only country in the world that uses oil.
We rank #23 out of 230 on a per capita basis, nearly everybody above us is either an Island nation where transport costs factor in huge or a Middle East nation with plenty of oil in their back yards.
The average American uses 2x as much, in running total, as do the French . . .
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 :)
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.
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.
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.
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.
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.
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.
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.
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.
