BP – Blame Pensions?

Prompted by a comment of James Cameron, that “every one in five pounds paid out as a dividend in 2009 came from BP” we checked the figures. It is indeed true.

UK companies paid out £56.9bn to investors in 2009.

BP and Shell paid a quarter of all UK dividends according to the Guardian newspaper.

BP alone paid out £10.9bn, i.e. just short of 20% of the UK total dividend.

So what?

Well, BP could be in the middle of the sort of crisis which cripples a company. The Deepwater Horizon blow-out is now expected to be the second worst oil industry pollution incident in history. Some commentators are claiming this could put an end to BP’s US licence to operate. And as a result, this huge source of cash flow into (British) pension schemes, which are often overweight in this stock, could also be at risk.

The media’s interest in BP peaks when it, as now, obligingly plays the role of corporate villain and every pundit feels able to say “BP should have invested more in safety measures”. But maybe BP’s apparent failures to keep pumping pressures under control (the fundamental issue behind the current crisis and the Texas refinery explosions) is indicative of a wider inability to manage the pressure of its other source of value – shareholder’s cash.

Bernie Madoff struggled and ultimately failed to meet the ROI expectations he had encouraged in his investors – and the fraud exploded under the pressure of avarice.

Similarly, BP may simply be in a frightening co-dependent relationship with the pension funds which desperately need this flow of dividend cash to fund their day-to-day payouts to pensioners, and keep telling themselves that, because BP has been paying dividends since 1917, it’s a safe bet and their fiduciary duty has been fulfilled.

The question is, will Tony Hayward (or his successor?) be able to step back and say “no dividends until further notice, we need to invest in proper health and safety controls and a proper renewables programme, if we want to still be here for our centenary.”

If he fails to do so, who is going to find a replacement financial product which will take the pressure off the system and satisfy pension funds that they can meet the projected demands on their reserves? Who will open up a new source of sustainable cashflow, as the 1945-6 baby boom generation hits 65 and looks forward to that Gulf of Mexico cruise that they’ve been promising themselves.