IS BP TOO BIG TO FAIL OR CUT ITS DIVIDEND?

From a post on Motley Fool about the BP Deepwater Horizon spill: ...it's only a matter of time before we hear the refrain "well, we can't let BP fail, they're too big and would collapse the global economy". In fact, we're already hearing rumblings of that, if you read the reports about BP alone representing 13% of all FTSE dividend income.

I'm sputtering. I'm aghast. I really don't know what to say. The above comment only summarizes what I was hearing yesterday about how a company that has caused the hugest (words fail me) environmental disaster in our countries history shouldn't even lower its dividend because it would hurt too many people. And the disaster is still going on. It shouldn't even be in business.

Where was the outcry, for example, when GE cut its dividend? It too is a huge company, and I presume it paid dividends to lots of widows and orphans. Whatever may happen to GE in the future, I believe it has yet to have a negative quarter for earnings. When I sold my GE stock, I took one of the largest losses of my investing career, and I had bought the stock many years ago between $20 and $25/share, which hardly seemed exorbitant.

Standard Oil was broken up. ATT was broken up. What has happened to us that BP is too big to be broken up. Here is a company that kills its employees (15 with something like 170 injured in 2005 and 11 more this year which is 26 within five years).

I just can't believe what I am hearing. I have never bought BP stock because I believe they are a rogue company.

Maybe I should have done all the above in caps! I'm screaming!

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Turns out that on June 3, 1979 the Ixtoc I exploratory well blew out 600 miles south of Texas in (where else) the Gulf Mexico. The spill is rated as the third largest ever (http://en.wikipedia.org/wiki/Ixtoc_I_oil_spill). It spilled 10s of thousands of gallons per day for 9 months and was finally capped on March 23rd of 1980. In the case of Ixtoc, most of the oil stayed far out to sea although there were major bird kills. Texas did take large precautionary measures.

Note this well was being drilled in water only 50 m deep, and it still took more than 9 mo to cap it. Also note that the famed Red Adair was involved in trying to stop the well flow. And note that the well continued to flow for three months even after the relief well made contact. No one knows where all this will end. Considering the Itex well experience, I wouldn't bank too much on the relief well stopping the flowage from Deepwater Horizon. So I wouldn't get my hopes up too much for Deepwater Horizon oil flow stoppage in the foreseeable future.

I would like to think that modern technology has improved so a better job will be done on Deepwater Horizon than on the Itex spill, but I don't know. The sequence going on in the Deepwater Horizon spill sounds awfully similar to the Itex spill, and you have to deal with a mile deeper water situation. Also the environmental damage from the Itex spill was very minor compared to Deepwater Horizon. I think that BP is in lawsuit city.

(The above is based on several posts on Motley Fool. These post are #330577 and #33076 in the Industrial Analysis Clubs/Macro Economic Trends and Risks; post 6365 in the Investment Analysis clubs/Dividend Growth Investing.)