It has been a reverse-gusher of a week for Anadarko, a 25 percent investor in the BP drilling disaster. Its stock has been the worst performing on the S&P 500 this week, as investors anguish over Anadarko’s possible liability.
The latest slide in the stock, which is off nearly half from its April highs, appears to have been precipitated by rumblings that BP could be forced to file for bankruptcy. That, in turn, would not appear be good for its partners in the project: Anadarko and Mitsui Oil Exploration, a unit of Japan’s Mitsui, which has a 10 percent stake.
Key to culpability would appear to be whether BP acted with gross negligence. Negligence, gross or otherwise, can’t be understated. I haven’t seen the joint operating agreement between Anadarko and BP—but those familiar with typical contracts say that “gross negligence” clauses by rig operators tend to be boilerplate.
Therein lies the ultimate issue about where the liability lies: Can Anadarko show gross negligence by BP when it comes to its obligation? Or will BP admit to gross negligence? The former is unclear and the latter would appear unlikely.
I had heard yesterday that BP had already submitted a bill for the cleanup to Anadarko. My colleague Bertha Coombs contacted BP and they told her, "We have not yet passed them any bills. But we would fully expect them as a responsible party and co-owner to pay their share."
No wonder investors in Anadarko so confused; they simply don't know the right way to view Anadarko. Here’s what I’m hearing:
This is the time to buy Anadarko on the cheap. It is widely regarded as having some of the most valuable assets in the oil patch, including its role as the largest independent leaseholder in the Gulf of Mexico.
The flipside is that so far that strategy has failed and that you've got the old catch-a-falling-knife scenario. And as appealing as Anadarko's stock and bonds are—its bonds are yielding north of 9 percent—there's concern that you walk in one morning and see a headline you don't like.
There's yet another view that Anadarko is a sitting duck to be acquired by some larger oil company looking to buy Anadarko's assets at a price per barrel that may be unprecedented. At this point, a deal at even a modest premium, by a buyer willing to accept the liability, might be viewed as a victory for investors.
Then there's this other view: That right now, no matter how analysts try to spin this, Anadarko's liability is simply unknown barring BP accepting full responsibility-- and now we know, based on BP’s comments about Anadarko’s responsibility, that doesn't appear likely.
Herb’s Hook: It's very clear now that the risk premium wasn't fully appreciated when these wells were being drilled. The same could be said today of the liabilities. Can’t wait to see who throws whom under the bus.