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What Has BP plc (ADR) (BP)’s Disaster Taught Us?

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BP plcWe likely have very different memories of the event that began three years ago today. Most of us watched in shock, and a little disgust, as the Transocean LTD (NYSE:RIG) owned Deepwater Horizon oil rig, which was leased to BP plc (ADR) (NYSE:BP), burned and spewed oil into the Gulf of Mexico. For me, that whole incident is a bit of a cloud as it began just one month before my wedding day. For you, the remembrance could be much more vivid, and its impact on your life much greater. For most of us, though, there’s a clear recollection of watching the heartbreaking images from the scene like this one:

Source: United States Coast Guard

The disaster in the Gulf was tough for any of us to stomach. Sadly, 11 people lost their lives in the explosion. The environmental and economic disaster that would ensue had many on edge for all 87 days that oil flowed out of the well and into the Gulf. Now, three years later, we can take a step back and think about what lessons have been learned.

First of all, as despised as BP plc (ADR) (NYSE:BP) was as it raced to cap the well, we’re actually lucky that the disaster happened to a company with the financial resources of the oil giant. So far, the company has agreed to pay more than $30 billion in fines, settlements, and cleanup costs. Very few companies could pull that off without going bankrupt.

That’s why we need to look at the disaster in terms of risk. For most Americans, we see the spill and its aftermath as evidence of the risk of doing business, so to speak. We need the oil, and it’s better to get it from our own backyard than to import it from overseas.

However, we also truly value our environment and, for many, this cost of doing business is more than we’d like to see our country paying. This disaster has helped to cement the belief that we need to hasten the move toward cleaner, renewable sources. As noble as that is, with just 13% of our electricity generated from renewable sources, and the fact that we haven’t developed an electric 18-wheeler, we have a long way go before that dream is a reality.

That means we have no choice but to keep drilling for oil, despite the risks. Untold billions will continue to be invested in the coming years to keep our economy humming. Many of us, as investors, will be contributing our own hard-earned capital to that cause, so we need to be reminded of some very clear takeaways.

First, you must know the risks of any investment you’re making. That’s easier said than done, and I think this quote from Carl Richards says it all: “Risk is what’s left over when you think you’ve thought of everything.” That’s why you need to think beyond the obvious, and consider how risky an investment might actually become.

For example, ATP Oil & Gas was forced into bankruptcy because its business couldn’t operate in the aftermath of the Gulf of Mexico disaster. The company was prevented from bringing production online because of the moratorium that was put in place after the disaster. That’s why it’s advisable to pay close attention to how a company is exposed to deepwater drilling, or to one commodity or region in particular. It goes without saying, you must be diversified so your risk is spread out.

That’s why you’re seeing more oil and gas companies partner on large projects. Just take a look at the announcement of a recent significant oil discovery in the Gulf, and you’ll notice that Anadarko Petroleum Corporation (NYSE:APC) had partnered with four other companies, including ConocoPhillips (NYSE:COP), Cobalt International, Marathon Oil Corporation (NYSE:MRO) and Venari Offshore. By working together, these five companies are spreading the risk so that no one company is exposed should a major disaster occur.

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