Energy expert Dr. Kent Moors is angry. And the main target for that anger is BP PLC (NYSE ADR: BP).
At its core, the Deepwater Horizon explosion and oil spill is a human tragedy: 11 workers were killed, others were injured and now many Gulf Coast residents will end up losing their homes and livelihoods.
But that's not all that has Dr. Moors seeing red: The accident that resulted from BP's incomprehensible risk-taking has killed an energy bill that could have set the U.S. economy on a course for energy freedom, and is going to summon the heavy hand of government in a way that will cost American consumers dearly while also keeping regular U.S. investors from reaping green.
In short, energy-sector profits will be much tougher to come by, both for companies, and for investors, says Moors, a well-connected international-energy-industry consultant who is also the editor of the Oil and Energy Investor advisory service.
"I'm pretty angry and BP is the focus of that ire," Moors said in an interview with Money Morning yesterday (Wednesday), shortly before he appeared on the Fox Business Network. "It has guaranteed that the drilling environment in the U.S. will undergo significant change. There will now be government overreaction, but leaving the production of new crude oil to the whims of [corporate] bottom lines is no longer an option."
What really rankles Dr. Moors, however, is that "this could have been avoided."
In the Money Morning interview, Dr. Moors also said that:
- He doesn't expect to see the oil spill abate until August, which is the earliest possible point when BP will be able to have "relief wells" drilled. And it could take longer, he noted.
- One expert's proposal to deploy a nuclear device at the bottom of the ocean to shut down the spigot that's continuing to spew thousands of gallons of oil into the Gulf of Mexico by the hour is a "terrible idea" that will only make matters worse.
- New government regulations he expects will reduce profits for companies and for investors, and will also reduce the amount of oil extracted.
- Capitol Hill insiders will have to return to the drawing board to craft a new U.S. energy plan.
- He spent the entire Memorial Day weekend evaluating Washington's response to the growing disaster and then briefed analysts and other sector insiders in New York City early this week.
- And Wall Street's recent newfound bullishness for BP's shares was far too premature.
According to Dr. Moors, "my latest take on the spill implications [is that] there are additional fissures, someas a result of the blowout in the vicinity of the wellhead.The lower marine riser platform(LMRP) approach currently underway has a low probability of success, but will put more crude oil in theGulf."
The upshot, according to Dr. Moors: "We now have no realistic alternative to the relief wells [and those won't be] on line until at least mid-August. That is, of course, if BP even has this reservoir mapped correctly [which wasn't the case when it] attempted to begin commercial drilling and the explosion resulted."
According to news reports, energy sector pundit Matthew R. Simmons – founder of the Houston-based energy-sector investment bank Simmons & Co. International, and author of the peak-oil best-seller "Twilight in the Desert" – told interviewers that it was time for the U.S. military to take over the oil-spill operation. Simmons also said it was time to consider deploying a nuclear device down into the well and detonating it to seal off the oil flow.
Simmons claimed that the Russians have done this to halt an underground oil-well fire, and that they've deployed tactical nuclear weapons as mining tools, according to published reports of the interview.
According to Dr. Moors, "the nuclear option is a terrible idea. Yes, the Russians have tried it – to put out an underground fire in an oil field several years ago. The fire continues, but itnow also involves irradiated oil."
Moors said any such effort would require an ultra-precise knowledge of the "reservoir, geological structure, pressure, volume and temperature considerations … before even thinking about detonating."
Furthermore, Moors said that "there is absolutely no reason to suspect that it would stop this leak. Irradiated oil moving into the Gulf does not improve the situation. Irradiated oil remaining below seabed level and migrating, as oil does, does not improve anything either. We do not even have weapons designed to do this."
The strict regulatory environment that Dr. Moors expects to emerge from this crisis "will require that companies focus on developing safer fields."
But there will be a cost.
"That could also mean fields of lower output, closer to existing production or located in basins that have a documented extraction record," Dr. Moors said. "Certainly, drilling offshore U.S. will move to the back burner, even while it expands elsewhere."
This new reality also means that the "current energy bill in DC is dead, thanks to the Deepwater Horizon explosion and the millions of gallons of crude oil approaching the U.S. coastline." That will send the Obama administration back to "Square One," in its bid to craft a national energy plan that includes "green technology" and that also reduces the U.S. reliance on foreign oil. That will take time, Dr. Moors said.
Finally, Dr. Moors expressed some surprise that analysts were upgrading BP's shares last week.
For instance, Oppenheimer & Co. analysts upgraded BP shares to "Outperform" from "Perform" last Thursday, contending that the stock had fallen too far following a sell-off that had sheared the company's market cap by 30%, or $55 billion. They set a target of $55 for BP's shares, which were trading in the $42 range when the upgrade call was made.
On Tuesday, BP shares took an additional $20 billion hit – equal to 15% of the company's market value – with the dual revelations that the so-called "top kill" plan to stop the leak had failed, and that the company faced a possible criminal probe.
BP's shares closed yesterday at $37.66.
When asked about the Wall Street upgrades late last week, Dr. Moors said the ratings improvement was "far too premature … even if the 'top kill' plan holds, BP is hardly out ofharm's way. There will be more restrictive regs on the way, and BP has otherrigs with very questionable specs. This is the worstoil spill in U.S. history. BP cannot count on the liability cap becauseit will be rescinded."
[Editor's Note: The sinking of the BP PLC Deepwater Horizon platform off the Louisiana coast has been, first and foremost, a human tragedy. But the disaster has also single-handedly derailed a crucial energy bill on Capitol Hill, prompted every governor considering offshore drilling to do an abrupt about-face, and revised how both public opinion and the market will look at oil production for years to come. In his latest video interview, Dr. Kent Moors explains the full impact of the oil spill – on both the environment and your money. You can watch the video here.]
News and Related Story Links:
- Oil and Energy Investor Newsletter:
- Money Morning News Archive:
Oil Spill News Stories
Everything You Need To Know About The Next Stage Of Deepwater: The Lower Marine Riser Package
Matt Simmons, Founder, Simmons And Company International
- Simmons & Co. International:
Analyst upgrades BP shares to 'Outperform' saying stock is cheap following massive oil spill
BP shares plunge 15% on 'top-kill' failure, criminal probe
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.