I agree that in the $30’s it’s a toss up but anything below $30 offer attractive risk reward.

Definitely not a short term play but could be well worth it if you could buy at the right price and hold for about 2 years.

I then calculated the liability (defined as clean-up + damages) per barrel, and found it fell into a range between $17,000 to $27,000 per barrel, in 2010 dollars.

If BP fits the same value range, then the total liability to BP could easily be over $100 billion.

My current assessment is that BP is fairly valued in the 30’s for the ADR, or perhaps offers a small risk premium over a high quality large cap (such as say, JNJ).

Given the uncertainty, I wouldn’t touch BP at fair value. I’ll get interested again if the price drops to $20.

http://www.msnbc.msn.com/id/21134540/vp/38285190#38285190

Post back if you find a video online, I’m definitely interested in hearing his comments.

I don’t buy Tilson’s argument as well. It isn’t very well laid out. Too many optimistic arguments, but it all boils down to the cleanup cost and what the lawsuits are going to cost for the future.

Will BP be able to pay it all? At the moment, my answer is yes which is why I think under $30 is an attractive price.

This is purely from a Graham investor. A Buffett type investor would be turned off by the management of the company alone.

I was under the impression that a new cap could not be constructed quickly and that BP was essentially a gamble until we saw if the relief wells were going to work or not, which we won’t know till August. If the previous cap broke off and oil gushed on out, it was game over for that ocean and BP too.

Because of this, I mostly stayed out of BP.

As a value investor, I constantly face the question of price. At some price, just because the odds are heavily in my favor, I should be willing to buy BP stock. The fact is that I haven’t yet ventured into energy companies and so it seems a bit rushed for me to try and jump in and invest my money into an energy company just because of a good deal. It’s outside of my circle of competence and so that’s the main issue for me.

Maybe at some price, we just don’t need to know all the details because of our margin of safety to cover for it?

Regarding Whitney Tilson – something I actually didn’t like was that he talked about how the claims won’t all be paid in today’s dollars, because the legal battles will drag out. I think he talked about the Texaco case where it didn’t have to be paid for 20 years, at which point the present value of those dollars is tiny. This inherently bothers me.

If I run a business and BP’s oil spill created an externality on me that harmed my business, I should be paid in a reasonable time. 20 years is not reasonable. If my business is harmed for 2-3 years, that’s a significant hit and I might not be able to withstand it if I’m waiting around for the legal issues to resolve. Tilson might have been assuming from the start that the court system would resolve this all slowly and I don’t like that assumption.

A responsible company takes risks for both the gains and losses, ideally gains being bigger than losses. If BP causes harm on others, they should pay for the damage they caused to try and make the other person “whole.” We’re not going to reward someone for being damaged, but rather put them back in the situation they would have otherwise been in. Paying claims 20 years after the incident is not reasonable and because I don’t agree with that ethically, I have a hard time investing in BP under these assumptions.