Energy Producers Paying Dearly for Their Dirty Sins

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Big oil and coal have long been a sort of necessary evil for the world, producing the energy we need for electricity, transportation, and industry while polluting our planet through reckless extraction procedures, adherence to the bottom line above all, and human and mechanical error.

The industry is continually receiving some resistance, often in the form of small (and occasionally large) government fines. Here is a list of current challenges being posed for various companies.

BP Declared to Have Lack of Integrity

According to this article at Fidelity Investments  “The U.S. government banned BP Plc (NYSE: BP) on Wednesday from new federal contracts over its "lack of business integrity" in the 2010 Deepwater Horizon oil spill, possibly imperiling the company's role as a top U.S. offshore oil and gas producer and the No. 1 military fuel supplier.”

Despite this, with the broader rally on raised hopes of Congress reaching a deal on the fiscal cliff, shares reversed earlier losses and rose slightly.

However, the effect was felt as BP was forced to sit out an auction for a lease off the gulf of Mexico which ultimately ended up selling to Chevron (NYSE: CVX) for $17.2 million. While current contracts with the US Government are unaffected, the company is banned from being issued new contracts by the US Government.

The move is widely believed to being used as a tool to exert leverage for BP to settle with the government and local agencies after the 2010 oil spill in the Gulf. Although the muted reaction by the markets means it was interpreted as being largely political, it nonetheless is no positive for the company.

Peabody Lagging

On Nov. 1, Peabody Energy (NYSE: BTU) closed at $29.28. As of this writing, it sits at $24.75. Why? Barrack Obama was re-elected, and he will not be kind to the dirty coal power Peabody produces. What’s more, he has an unlikely ally in Congress to pass a carbon tax, and you’ll never guess who: ExxonMobil (NYSE: XOM)

There is an excellent article on Forbes about this, but let me ask you, the reader, do you think Exxon had a sudden change of heart and wants to save us from global warming?

I take it by your laughter you don’t give this much credence. Nope, Exxon is hoping to make more money! Ahhhh … that’s more like it. Exxon has a lot of investments in natural gas, having purchased XTO Energy for $30 billion.

By passing a carbon tax, the price of coal (which is far dirtier than gas) will rise substantially, and the demand for gas will increase, meanwhile Exxon will be eating Peabody and other coal producers' lunches.

If you think this tax will pass Congress, then it might be good to go long natural gas producers like Devon Energy (NYSE: DVN) and sell your holdings in coal.   

Chevron Losing Court Battle over Amazon

Chevron continues to pay for purchasing Texaco, as they inherited much more than they bargained for where the former company polluted and destroyed a large swath of rainforest area.

CNN reported last month that the Supreme Court denied an appeal block the $18 billion judgment by an Ecuadorian court.

The company claims the case fraudulent, and that only bribes lead to the original judgment against it, to which I reply, “There is no link between cigarettes and lung cancer either."

It’s Dirty I Tell Ya

I’m no proponent of coal, but seeing as Exxon is backing a carbon tax after only a couple years ago hiring scientists, ala the tobacco companies, to “independently assess” whether global warming was real or not just shows how dirty politics and the energy industry are. Anything for a buck.

Investor Takeaway

I am going long natural gas. It’s underpriced, we’ll soon be using it in our cars, it burns cleaner than other carbon based fuels, and Exxon and Obama are teaming up to increase demand for it. It's hard to go wrong. 

margiecfl has long positions in BP and Devon. The Motley Fool owns shares of Devon Energy and ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus