From Barron's Stocks to Watch Today blog:
Last week, I cited an interview with Matt Simmons, noted energy pundit a founder of boutique investment house Simmons & Co., written by Fortune magazine’s Nin-Hai Tseng.Tiernan followed up with "BP: Another View From Simmons & Co.":
(Simmons is not working actively with the firm he founded, and the firm recently upgraded BP to “Outperform.” Simmons & Co. does not have a position in BP shares, long or short.)
Simmons in the piece predicted BP would be filing for Chapter 11 in a month. I caught up with Simmons this morning by phone to review his thoughts on the matter. He still thinks BP is headed for Chapter 11.
In response to calls for a $20 billion escrow to be set aside by BP, Simmons concludes the company’s as good as insolvent.
“They have $5 billion in cash, a $5 billion line of credit, and a $10B emergency line of credit,” says Simmons, “and they boast about how their operating cash flow is $17 billion per quarter. But that’s all consumed in capital expenditures. This outlay [the $20 billion] is going to consumer everything they have.”
When pressed about whether the company might not simply get other lines of credit, Simmons responded, “From whom? Who’s going to do that?” Perhaps Goldman Sachs (GS), which is apparently helping the company avoid a hostile takeover.
In any case, Simmons says a voluntary bankruptcy filing would allow the company to “stack claims” against it, to better manage how it has to pay.
Simmons has a 4,000-share short sale on BP that he picked up when the stock hit $37. That’s in addition to a prior 4,000-share short sale he made at $48 a couple weeks prior. “It’s going to zero,” he says of BP stock.
Mind you, Simmons has an interest and a deep investment in moving beyond fossil fuels.
Simmons called me from northern Maine, where he was at the University of Maine’s Ocean Energy Institute, a project to develop off-shore wind power facilities.
Yesterday, he entertained Republican Senator Susan Collins and Secretary of Energy Steven Chu at the Institute. He says Chu was impressed with Simmon’s vision of off-shore wind turbines on floating platforms with blades that stretch 80 stories high. Each wind turbine will drive a 50 megawatt power plant that will drive a process that’s like electrolysis, creating liquid ammonia that can be sent back to land as a fuel.
“This is such a great resource,” said Simmons of the project, which has been in development for three years.
Turning to the spill, Simmons reiterated the rather surprising conclusion that the current “top kill” effort by BP, as well as the planned relief wells, will not stop the Gulf spill.
He says he talked over the weekend with scientists on board the Thomas Jefferson, a research boat used by the National Oceanographic Administration.
The chat confirmed his suspicion that the leak that BP is focusing on at the “riser” is not the problem. The real problem is a gaping hole at the “well head,” 8 miles away.
“The riser leak is a deception,” says Simmons. “The hole is in the well head — it’s the well bore.”>>>MORE
As I mentioned in an interview earlier with Matt Simmons, a fierce skeptic of BP (BP), the firm he founded several years back is actually bullish on BP. Simmons & Co. International raised its rating on BP on Friday to “Overweight” from “Neutral,” with a $52 price target....MORE