Too early to turn the page at BP

There is something of a clean up (if you’ll forgive the pun) going on at BP.

Yesterday the company sold $3.5bn worth of bonds, with demand high and the 5-year tranche being priced at a respectable (if sector-lagging) 195 bps over US Treasuries. The renewed confidence from the credit markets has helped the cost of default protection on its debt fall to 191bps from a high of 614bps in June.

Then today, Robert Dudley made his first personnel change before becoming CEO on Friday, putting Mark Bly, the UK head of safety, in charge of a new souped-up safety and risk division, and announcing plans to split the exploration business into three. The company said that change would lead to the departure of Andy Inglis, the head of exploration, by the end of the year.

Following its bond deal, a person close to BP told the FT: “We see this as part of our return to business as usual.” It is a telling remark, and one that sheds light on the comments today by Dudley himself, who said in regards to the management changes: “These are the first and most urgent steps in a programme I am putting in place to rebuild trust in BP.”

With estimates of the liabilities BP faces for the Gulf oil spill falling, with its creditworthiness apparently returning to normal levels and with its shares having rebounded from the bottom, perhaps its various stakeholders can now start to breathe a sigh of relief and look to the future.

But this would be a grave mistake, warns Alastair Syme of Nomura. He makes one very pertinent point which investors should take as a warning:

After the Texas City disaster in 2005 and then Macondo, one more serious industrial accident and BP might be out of business.

Even if it is able to restore its reputation with sweeping management and structural changes; even if its liabilities fund covers its eventual costs; even if it is able to retain most or all of its trading partnerships and good relations with governments, BP remains one disaster away from death.

This leaves the company with two options: make sure no disaster ever happens again or radically change BP to make sure it doesn’t look like the company involved in the 2005 and 2010 accidents. The former option is nigh-on impossible to guarantee, even with the changes Dudley is making. The latter would involve far more sweeping changes than the new CEO is currently contemplating, perhaps a change of name and even splitting up the company.

So before investors pile back into BP’s stock or debt, they should bear in mind that the company is only secure (if it is at all) until its next accident.

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