A Growing Season Gone

August 2010

A Growing Season Gone110 Days That Shook the Obama Administration

The Political Impact of the Deepwater Horizon Oil Spill

James Lucier, Managing [email protected]

Robert Kaminski, Associate [email protected]

© 2010 Capital Alpha Partners, LLC. All rights reserved.

0%!

10%!

20%!

30%!

40%!

50%!

60%!

70%!

April 12

-18!

April 19

-25!

April 26

-May

2!

May

3-9!

May

10-

16!

May

17-

23!

May

24-

30!

May

31-

June

6!

June

7-1

3!

June

14-

20!

June

21-

27!

June

28-

July

4!

July

5-11!

July

12-1

8!

July

19-2

5!

July

26-A

ug 1!

Aug 2

-8!

% N

ewsh

ole*!

Week!

Oil Spill Media Coverage!

Newspapers!

Online!

Network TV!

Cable TV!

Radio!

2

Source: Pew Research Center, Project for Excellence in Journalism

* Percentage of total time (TV, radio), or words (Newspapers, Online) dedicated to coverage of the explosion and spill

Oil Spill News Coverage by Source


0%!

10%!

20%!

30%!

40%!

50%!

60%!

70%!

0!

100!

200!

300!

400!

500!

600!

700!

800!

April 12

-18!

April 19

-25!

April 26

-May

2!

May

3-9!

May

10-

16!

May

17-

23!

May

24-

30!

May

31-

June

6!

June

7-1

3!

June

14-

20!

June

21-

27!

June

28-

July

4!

July

5-11!

July

12-1

8!

July

19-2

5!

July

26-A

ug 1!

% N

ewsh

ole*!

Bas

is P

oint

s!

Week!

BP Credit Default Swaps and Oil Spill News Coverage!

News Coverage Index (cable TV)! 1-Year BP CDS (weekly close)! 5-Year BP CDS (weekly close)!

3

Sources: Bloomberg; Pew Research Center, Project for Excellence in Journalism


© 2010 Capital Alpha Partners, LLC. All rights reserved. 4

0%!

5%!

10%!

15%!

20%!

25%!

30%!

35%!

40%!

45%!

50%!

$- !

$10 !

$20 !

$30 !

$40 !

$50 !

$60 !

$70 !

April 12

-18!

April 19

-25!

April 26

-May

2!

May

3-9!

May

10-

16!

May

17-

23!

May

24-

30!

May

31-

June

6!

June

7-1

3!

June

14-

20!

June

21-

27!

June

28-

July

4!

July

5-11!

July

12-1

8!

July

19-2

5!

July

26-A

ug 1!

Aug 2

-8!

% N

ewsh

ole!

$ P

er S

hare!

Week!

BP Share Price and Oil Spill News Coverage!

Pew Oil Spill News Coverage Index (all media)! BP Weekly Closing Share Price!

Sources: Bloomberg; Pew Research Center, Project for Excellence in Journalism



0%!

5%!

10%!

15%!

20%!

25%!

30%!

35%!

40%!

45%!

50%!

April 12

-18!

April 19

-25!

April 26

-May

2!

May

3-9!

May

10-

16!

May

17-

23!

May

24-

30!

May

31-

June

6!

June

7-1

3!

June

14-

20!

June

21-

27!

June

28-

July

4!

July

5-11!

July

12-1

8!

July

19-2

5!

July

26-A

ug 1!

Aug 2

-8!

% N

ewsh

ole*!

Week!

Oil Spill Timeline and News Coverage!

5

April 29Washington takes note

May 30Deepwater moratorium

June 17Hayward

House

June 30Bingaman

spill bill passes

committee

July 15Macondo

well capped

Waxman spill bill passes

committee

Rahall spill bill passes committee

July 30House passes Rahall spill bill,

adding Congressional

spill commission

House leaves for August

recess

April 30Macondo

blowout

Source: Capital Alpha research, Pew Research Center, Project for Excellence in Journalism


Aug. 4Static kill complete

Aug. 10BP

damages fund

secured

May 31-June 4Memorial Dayrecess

testimony

July 5-9Fourth of July Recess


When You Can’t Talk About Something Else

No answer to five basic questions:

- How much oil?

- When will it stop?

- What will it cost?

- Where is landfall?

- What exactly happened and why?

6


The Political Cost of Time Wasted

- Opportunity cost, opportunity lost

- An irreplaceable cyclical moment

- Impact slight on surface, lasting impact will be deep

- Spill hardens, polarizes existing perceptions

7


A Growing Season Gone

- 110 days from blowout to cement

- Trust fund established

- Consolidation of docket

- 74% of oil dispersed or removed

- 40% of fishing areas reopened

8

...110 days President Obama would rather have talked about something else


The Spill in Context

- 11 dead

- 4.9 million barrels

- BP costs in excess of $40 billion

- Landfall limited

- No impact on oil and gas prices

9

1.5 million barrels of oil

15 quadrillion barrels of water in Gulf of Mexico

= 1 part per billion


100,000 !

3,500,000 !

260,000 !

4,900,000 !

- !

1,000,000 !

2,000,000 !

3,000,000 !

4,000,000 !

5,000,000 !

6,000,000 !

Union Oil Santa Barbara! Pemex Ixtoc I! Exxon Valdez! BP Deepwater Horizon!

1969! 1979! 1989! 2010!

Bar

rels

of O

il S

pill

ed!

Notable Past Oil Spills!

The Policy Impact to Prior Spills

10

Union Oil Santa Barbara1969

- Environmental Protection Agency (EPA)

- National Environmental Policy Act (NEPA)

- Clean Water Act (CWA)

- California Coastal Commission (CCC)

Pemex Ixtoc I1979

Exxon Valdez1989

- Oil Pollution Act

- Double-hulled tankers

BP Deepwater Horizon2010


The Cost to President Obama

11

- A positive, proactive agenda to communicate

- Energize his base prior to election

- Kagan, immigration, campaign finance, healthcare defense, middle class tax cuts

- Energy agenda completely wiped out


Presidential Approval Rating

12

April 202010

May 6 May 22 June 18 July 8 July 19 August 11

Real Clear Politics Presidential Approval Poll AverageApprove Disapprove

Source: Real Clear Politics

0%! 10%! 20%! 30%! 40%! 50%! 60%!

Strongly relate to him as your president!

Somewhat relate to him!

Relate to him only a little!

Do not really relate to him!

When it comes to the presidency of Barack Obama, do you...?!

January 2009!

June 2010!

When it comes to the presidency of Barack Obama, do you...?

Source: NBC/Wall Street Journal Poll, June 17-21, 2010 0%! 10%! 20%! 30%! 40%! 50%! 60%!






January 2009! June 2010!

0%! 10%! 20%! 30%! 40%! 50%! 60%!







As I read some pairs of opposite phrases, which one best reflects your impression of Barack Obama?

0%! 10%! 20%! 30%! 40%! 50%! 60%! 70%! 80%! 90%! 100%!

Trustworthy!

Not trustworthy!

Warm and friendly!

Cold and aloof!

As I read some pairs of opposite phrases, which one best reflects your impression of Barack Obama?!

Feburary 2009!

June 2010!

0%! 10%! 20%! 30%! 40%! 50%! 60%! 70%! 80%! 90%! 100%!

Trustworthy!

Not trustworthy!

Warm and friendly!

Cold and aloof!

As I read some pairs of opposite phrases, which one best reflects your impression of Barack Obama?!

Feburary 2009!

June 2010!

Source: PSRA/Pew Poll, June 2010


0%! 10%! 20%! 30%! 40%! 50%! 60%! 70%!

Yes!

No!

June 2010!

July 2009!

Tell me whether the following statement applies to Obama, or not?

Obama understands the problems of people like youObama is a strong leader

No

Yes

Source: ABC/Washington Post Poll, June 3-6, 2010

0%! 10%! 20%! 30%! 40%! 50%! 60%! 70%! 80%!

Being easy going and likeable!

Being compassionate enough to understand average people!

Being honest and straightforward!

Being firm and decisive in decision making!

How would you rate Barack Obama on the following qualities...?!

January 2009!

June 2010!

Being easy going and likable

Being compassionate enough to understand average people

Being honest and straightforward

Being firm and decisive in decision making

0%! 10%! 20%! 30%! 40%! 50%! 60%!







How would you rate Barack Obama on the following qualities?

Source: NBC/Wall Street Journal Poll, June 17-21, 2010

0%! 10%! 20%! 30%! 40%! 50%! 60%! 70%!

Yes!

No!

June 2010!

July 2009!

0%!10%!20%!30%!40%!50%!60%!70%!80%!

Yes!

No!

July 2009!

June 2010!

0%! 10%! 20%! 30%! 40%! 50%! 60%! 70%!

Yes!

No!

July 2009!

June 2010!


The Katrina Narrative

14

- At least 1,836 people dead, tens of thousands homeless, 1.2 million evacuees

- $80 billion in property damage

- Historic New Orleans feared destroyed

- Looting, violence, chaos

- A major port shut down

- Retail gasoline price spikes and shortages not seen since Iran hostage crisis

A bigger disaster (in human terms) at a worse time

A bookend to 9/11 and the opposite end of the trajectory --Bush’s second mid-term Iran contra moment


Obama at 41%July 27-Aug. 1, 2010

Bush at 40%Aug. 22-25, 2005

(Week before Katrina)

553 days 1,675 days

Pre

sid

entia

l Ap

pro

val R

atin

g

Days into Presidency

President ObamaPresident Bush

Source: USA Today

USA Today Comparative Presidential Approval Ratings


The Danger Zone Below 40%

16

Truman Nixon Carter Bush 43

Pre

sid

entia

l Ap

pro

val R

atin

g

Year

USA Today Presidential Approval Ratings 1945-Present

Source: USA Today


0%!

10%!

20%!

30%!

40%!

50%!

60%!

70%!

Feb 6

-9!

Mar

5-9!

Apr 2-6!

Apr 30-

May

3!

Jun

6-8!

Jul 9

-13!

Jul 3

0-Aug

3!

Sept 2

7-31!

Oct 1

-5!

Oct 2

9-Nov

1!

Dec 3

-6!

Jan

7-11!

Jan

28-3

1!

Feb 2

5-28!

Apr 1-5!

May

6-9!

Jun

10-1

3!

Jul 2

2-25!

Right Direction!

Wrong Track!

Unsure!

17

Generic Ballot Congressional Job Approval

20102009

Generally speaking, would you say things in this country are heading in the right direction, or are they off on the wrong

track?"

Source: Ispos/Reuters Poll, July 22-25, 2010


Energy/Environment Low on Priorities List; Drilling Still Popular

18

0%! 10%! 20%! 30%! 40%! 50%!

The economy!

The federal budget deficit!

Illegal immigration!

Health care!

The wars in Iraq and Afghanistan!

Education!

Terrorism!

Energy and environmental policies!

Other!

Unsure!

Which of the following is the most important issue facing the country today..?

Source: CNN/Opinion Research Poll, July 16-21, 2010

0%!

10%!

20%!

30%!

40%!

50%!

60%!

70%!

May

4-5!

May

16-

17"!

May

30-

31"!

Jun

13-1

4"!

Jun

15-1

6"!

Jun

27-2

8"!

Jul 1

8-19"!

Aug 1

-2 "!

Should offshore oil drilling be allowed?!

Yes! No! Not Sure!

0%!

10%!

20%!

30%!

40%!

50%!

60%!

June

24-

25!

July

18-1

9!

Aug 1

-2!

Should deepwater oil drilling be allowed?!

Yes! No! Not Sure!

Source: Rasmussen Reports Source: Rasmussen Reports


The Election Impact

19

- Both House and Senate remain in play

- Slight negative for Democrats: a few Gulf Coast seats affected, off-message, distracted

- Not particularly positive for Republicans- Bobby Jindal and David Vitter do well- Policy victories for Obama drive Republican turnout too

- FL Senate: Three-way race between Rubio, Christ, and a Democrat

- Overhang: - Obama on track to lose Senate seats in 2010, a big change from 2009

outlook- Dems on defensive in 2012, 2014

- Election outcome: neither side has effective control- Tense gridlock, budget focus- 2011 is about 2012 cycle


The Policy Impact

- Congress may pass nothing this year

- The Slow Mo-ratorium

- The Orphan Commission

- Institutional paralysis at Interior Dept.

20


The Future Is All About The Deepwater

21

Oil

Source: OCS Report MMS 2009-012, Gulf of Mexico Oil and Gas Production Forecast 2009-2018, U.S. Department of the Interior

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Deepwater Horizon Investigations

22

Title Date Announced Description Leaders Report Due

President’s National Commission on the BP Deepwater Horizon Oil Spill

May 22, 2010 (by Executive Order)

Investigation into cause of Deepwater Horizon spill; will recommend regulations to prevent and mitigate future spills

Co-Chairs: Fmr. Sen. Bob Graham (D-Fl.), Fmr. EPA Administrator William Reilly

January 12, 2011

Coast Guard / Bureau of Ocean Energy Management, Enforcement, and Regulation Joint Investigation

April 27, 2010(convening order)

Coast Guard Marine Board of Investigation into the “factors leading to the explosion, loss of life, sinking, and subsequent oil spill of the Deepwater Horizon”

Co-Chairs: Coast Guard Capt. Hung NguyenDavid Dykes, BOEM

January 27, 2011

Bureau of Ocean Energy Management, Enforcement, and Regulation “Fact-Finding Forums”

August 4, 2010 (first meeting)

To “collect information and views about deepwater drilling safety reforms, well containment, and oil spill response...” for consideration in evaluating if changes need to be made to DOI deepwater moratorium

BOEM Director Michael Bromwich Unannounced

House Energy and Commerce Committee April 22, 2010 (first letter to BP, RIG)

Causes of the incident, adequacy of safety measures and practices, emergency response, and the role of the Interior Dept.

Full Committee Chair Rep. Henry Waxman (D-Calif.), Oversight & Investigation Subcommittee Chair Rep. Bart Stupak (D-Mich.)

Unannounced

National Academy of Engineering / National Research Council

July 16, 2010(first meeting)

Requested by Interior Dept., Determine “probable” cause of explosion, BOP performance, technology failure; recommend technology, best practices, and standards to prevent future accidents

Fmr. Navy Secretary Donald Winter Unannounced

U.S. Chemical Safety and Hazard Investigation Board

June 18, 2010 Requested by Reps. Henry Waxman (D-Mass.) and Bart Stupak (D-Mich.) June 8; Investigation into “root causes of the accidental chemical release” that resulted in Deepwater Horizon explosion and any similarities to 2005 Texas City refinery explosion

Unannounced Unannounced

FBI / EPA / Coast Guard July 28, 2010 (Washington Post story)

Criminal investigation into relationship of regulators with BP, Transocean, Halliburton -- e.g., any falsified statements, test results, bribes to MMS, etc.

Unannounced Unannounced

Securities and Exchange Commission / Department of Justice

July 27, 2010(BP 10-Q)

“Securities-related matters” from spill Unannounced Unannounced

Department of Justice June 1, 2010 Civil and criminal investigation under the Clean Water Act, the Oil Pollution Act, the Migratory Bird Treaty Act, the Endangered Species Act, and other criminal statutes.

Head of DOJ Environment and Natural Resources Division, Ignacia Moreno

Head of DOJ Civil Division, Tony West

Unannounced

Gulf States July 27, 2010(BP 10-Q)

Louisiana Attorney General has filed discovery petition, requested document production related to explosion and spill, others are expected to be conducting investigations and preparing suits

Gulf States Attorneys General Unannounced

BP Internal Investigation April 22, 2010 BP is conducting its own internal investigation into the causes of the explosion and spill

Personnel unannounced, investigation team based in Houston, TX

Unannounced


Impact on BP

- Strong asset base, cash flows, and settlement structure

- Economic damages

- Fines, criminal penalties, natural resource damages

- Finger-pointing, negligence, criminal violations: BP vs. partners

- Litigation: class actions, environmental mass torts

23


Summary and Conclusions

The Deepwater Horizon oil spill narrative is still up for grabs.

Existing perceptions -- mostly negative -- of the President and Congress have hardened.

The President loses a chance to reset prior to 2010 election cycle.

The Gulf becomes a deepwater game for big companies only.

The spill was no Katrina, Santa Barbara, or Valdez. “Drill, baby, drill” may ride again some day.

24


Senate Election Projection: GOP Net +5 to 8

25

Likely Democrat60-80%

Leaning Democrat51-60%

Leaning Republican51-60%

Likely Republican60-80%

Seats Now Held by Democrats

New York (Kirsten Gillibrand)

Connecticut (Chris Dodd)*

Oregon (Ron Wyden)

California (Barbara Boxer)

Washington (Patty Murray)

West Virginia (Carte Goodwin)*

Wisconsin (Russ Feingold)

Colorado (Michael Bennet)

Nevada (Harry Reid)

Illinois (Roland Burris)*

Pennsylvania (Arlen Specter)**

North Dakota (Byron Dorgan)*

Delaware (Ted Kaufmann)*

Arkansas (Blanche Lincoln)

Indiana (Evan Bayh)*

Seats Now Held by Republicans

Missouri (Kit Bond)*

Ohio (George Voinovich)*

North Carolina (Richard Burr)

Florida (Mel Martinez)*

Lousiana (David Vitter)

New Hampshire (Judd Gregg)*

Kentucky (Jim Bunning)*

* Retiring** Defeated in primary

Source: Capital Alpha estimates

James LucierManaging Director

Capital Alpha Partners, LLC

[email protected]

Analyst Certification: The following analysts hereby certify (1) that their views about any and all of the subject companies and securities discussed in this report are accurately expressed and (2) that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report: James Lucier and Robert Kaminski.

Important Disclosures: This publication is for private circulation and distribution in its entirety; it is provided to you for information purposes only. This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. Capital Alpha Partners, LLC makes every effort to use reliable, comprehensive information, but we do not represent or warrant that it is accurate or complete. The views in this publication are those of Capital Alpha Partners, LLC and are subject to change without notice. Capital Alpha Partners, LLC has no obligation to update its opinions or the information in this publication. Neither Capital Alpha Partners, LLC, nor any respective officers, directors, partners, employees, or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. Analysts may own securities of the issuers discussed herein.

© Copyright Capital Alpha Partners, LLC (2009). All rights reserved. No part of this publication may be reproduced, sold, or redistributed without the prior written permission of Capital Alpha Partners, LLC.

Robert KaminskiAssociate Director

Capital Alpha Partners, LLC

[email protected]

A Growing Season Gone

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