A Growing Season Gone

August 2010

A Growing Season Gone 110 Days That Shook the Obama Administration The Political Impact of the Deepwater Horizon Oil Spill James Lucier, Managing Director james.lucier@capalphadc.com Robert Kaminski, Associate Director robert.kaminski@capalphadc.com

Oil News Spill Media Coverage!

Oil Spill Coverage

by Source 70%!

60%!

40%!

Newspapers!

30%!

Online!

Network TV!

20%!

Cable TV! Radio!

10%!

3M 9! ay 10 -1 M 6! ay 17 -2 M 3! ay M 24 ay -3 31 0!

-J un e Ju 6! ne 7Ju 13 ne !

14 -2 Ju 0! ne Ju 21 ne -2 7!

28 -J ul y 4!

Ju ly 511 Ju ! ly 12 -1 Ju 8! ly 1 Ju 9ly 25 26 !

-A ug 1!

Au g 28!

ay

2!

M

ay

-M

25 !

26

19 Ap r

il

ril Ap

ril

12 -

18 !

0%!

Ap

% Newshole*!

50%!

Week!

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

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

2

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)!

800!

70%!

700!

60%!

50%!

500!

40%!

400!

30%!

300!

20%!

200!

10%!

100!

Week!

1!

Au g

26 -

19 -2 5!

Ju ly

Ju ly

12 -1 8!

Ju ly

511 ! y

4!

Ju l

ul y

28 -J

21 -2 7!

Ju ne

Ju ne

14 -2 0!

Ju ne

713 !

6!

Ju ne

31 -

Ju ne

24 -3 0! ay M

M

ay

17 -2 3!

ay

10 -1 6!

M

M

ay

ay

39!

2!

M

ay

26 -M

Ap

ril

ril Ap

ril

19 -2 5!

0%!

12 -1 8!

0!

Ap

% Newshole*!

Basis Points!

600!

Sources: Bloomberg; 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

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

3

BP Share Price and Oil Spill News Coverage!

Pew Oil Spill News Coverage Index (all media)!

BP Weekly Closing Share Price!

$70 !

50%!

45%!

$60 !

40%!

35%!

30%!

$40 !

25%! $30 !

20%!

% Newshole!

$ Per Share!

$50 !

15%!

$20 !

10%! $10 !

5%!

ay M

-3 0!

31 -J un e 6!

Ju ne 713 Ju ! ne 14 -2 0!

Ju ne 21 Ju -2 7! ne 28 -J ul y 4!

Ju ly 511 !

Ju ly 12 -1 8!

Ju ly 19 -2 Ju 5! ly 26 -A ug 1!

Au g 28!

-2 3!

17

ay M

M

ay

ay

10

39

-1 6!

!

2!

M

24

ay

M

Ap

ril

26

-M

ay

-2 5 19

-1 8

Ap ril

12 Ap ril

!

0%!

!

$- !

Week!

Sources: Bloomberg; 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

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

4

Oil Spill Timeline and News Coverage!

50%!

June 17 Hayward House testimony

45%!

May 30 Deepwater moratorium

40%!

July 15 Macondo well capped

% Newshole*!

35%!

May 31-June 4 Memorial Day recess

30%!

Rahall spill bill passes committee

25%!

20%!

15%!

10%!

June 30 Bingaman spill bill passes committee

April 29 Washington takes note

April 30 Macondo blowout

July 30 House passes Rahall spill bill, adding Congressional spill commission

Waxman spill bill passes committee

Aug. 4 Static kill complete Aug. 10 BP damages fund secured

House leaves for August recess

July 5-9 Fourth of July Recess

5%!

Week!

Au g

2-

8!

1!

Ju l

y

26 -A u

g

25 !

19 -

Ju l

y

18 !

12 y

Ju l

Ju

ly

5-

11 !

4!

28 -J

ul y

-2 7!

21

Ju ne

Ju ne

-2 0!

14

Ju ne

Ju ne

71

3!

6! e

31 -

Ju n

-3 0! ay M

M

ay

24

-2 3! ay

M

ay M

17

-1 6!

10

39! ay

M 26 ril

Ap

M

ay

2!

25 !

19 ril

Ap

Ap

ril

12 -

18 !

0%!

Source: Capital Alpha research, 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

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

5

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?

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

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

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

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

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

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

8

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

1.5 million barrels of oil 15 quadrillion barrels of water in Gulf of Mexico

= 1 part per billion

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

9

The Policy Impact to Prior Spills Notable Past Oil Spills!

6,000,000 !

4,900,000 !

Barrels of Oil Spilled!

5,000,000 !

4,000,000 !

3,500,000 !

3,000,000 !

2,000,000 !

1,000,000 !

260,000 !

100,000 !

- !

Union Oil Santa Barbara!

Union Oil Santa Barbara 1969 1969!

- Environmental Protection Agency (EPA)

- National Environmental

Pemex Ixtoc I!

Pemex Ixtoc I 1979 1979!

Exxon Valdez!

Exxon Valdez 1989 1989!

BP Deepwater Horizon!

BP Deepwater Horizon 2010 2010!

- Oil Pollution Act - Double-hulled tankers

Policy Act (NEPA)

- Clean Water Act (CWA) - California Coastal

Commission (CCC)

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

10

The Cost to President Obama

-

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

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

11

Presidential Approval Rating Real Clear Politics Presidential Approval Poll Average Approve

April 20 2010

May 6

May 22

Disapprove

July 8 July 19

June 18

August 11

As I read some pairs opposite Source: Realof Clear Politicsphrases, which one best reflects your impression of Barack Obama?!

AsI Iread read some pairs of opposite phrases, which one best As some pairs of opposite phrases, best reflects your impression 0%!

10%!

20%!

30%! 40%!

50%!which 60%!one 70%!

80%!

90%!

100%! of Barack Obama?!Obama? reflects your impression of Barack

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

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

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

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

Strongly relate to him as your president!

Not Trustworthy! trustworthy!

Feburary 2009!

January 2009!

Not trustworthy!

June 2010!

Somewhat relate to him!

Relate to him only a little!

June 2010!

Feburary 2009!

June 2010!

Warm and friendly!

Warm and friendly!

Do not really relate to him!

Cold and aloof!

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

January 2009!

June 2010!

0%!Journal 10%!

20%!

30%!

Source: NBC/Wall Street Poll, June 17-21, 2010 40%!

Cold and aloof!

50%!

60%!

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

January 2009!

0%! Source: 10%!PSRA/Pew 20%! Poll, 30%!

June 40%!

2010

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

Strongly relate to him as your president!

June 2010!

Strongly relate to him as your president!

50%!

12

60%!

How would Barack Obama Obama onon thethe following qualities...?!

How would you you raterate Barack following qualities?

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

Beingeasy easygoing goingand andlikeable! likable Being Being compassionate enough to Being compassionate enough to understand understand average people!average people

January 2009!

June 2010!

Being honest and Being honest and straightforward! straightforward Being firm and decisive in Being firm and decisive in decision decisionmaking! making

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

January 2009!

June 2010!

Source: NBC/Wall Journal20%!

Poll, June 17-21, 40%!

2010 0%! Street 10%!

30%!

50%!

60%!

Strongly relate to him as your president!

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

Obama is a strong leader

Somewhat relate to him!

Obama understands the problems of people like you

No!

Relate to him only a little!

No No! No! Do not really No! relate to him!

June 2010!

July 2009!

Yes!

July 2009!

July June2009!

2010!

June 2010!

June 2010!

July 2009!

Yes! Yes! Yes! Yes

0%!

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

0%!

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

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

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

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

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

13

The Katrina Narrative

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

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

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

14

USA Today Comparative Presidential Approval Ratings

Presidential Approval Rating

President Bush

553 days

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

President Obama

1,675 days Bush at 40% Aug. 22-25, 2005 (Week before Katrina)

Days into Presidency Source: USA Today

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

15

The Danger Zone Below 40%

Presidential Approval Rating

USA Today Presidential Approval Ratings 1945-Present

Truman

Nixon

Carter

Bush 43

Year Source: USA Today

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

16

70%!

60%!

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

50%!

40%!

30%!

Right Direction!

Wrong Track!

20%!

Unsure!

10%!

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

2009

Generic Ballot

-2

5!

3!

22

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Ju l

10

69!

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ct 1 O ct

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-6

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-9 !

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ar 5 M

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6-

9!

0%!

2010

Congressional Job Approval

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

17

Energy/Environment Low on Priorities List; Drilling Still Popular Which of the following is the most important issue facing the country today..?

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!

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

Should offshore oil drilling be allowed?!

Yes!

No!

Should deepwater oil drilling be allowed?!

Not Sure!

Yes!

70%!

60%!

60%!

50%!

50%!

30%!

30%!

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

1g Au

18 ly Ju

24 ne Ju

Source: Rasmussen Reports

-1

-2

9!

5!

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0%! !

0%! !

10%!

5!

10%!

2!

20%!

20%!

ay

Not Sure!

40%!

40%!

M

No!

Source: Rasmussen Reports 18

The Election Impact

- 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

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

19

The Policy Impact

- Congress may pass nothing this year - The Slow Mo-ratorium - The Orphan Commission - Institutional paralysis at Interior Dept.

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

20

The Future Is All About The Deepwater "!!! &%!!

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Deepwater Horizon Investigations 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 Nguyen David 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

Unannounced

Head of DOJ Civil Division, Tony West

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

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

22

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

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

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.

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

24

Senate Election Projection: GOP Net +5 to 8

Likely Democrat 60-80%

Seats Now Held by Democrats

New York (Kirsten Gillibrand) Connecticut (Chris Dodd)* Oregon (Ron Wyden)

Leaning Democrat 51-60%

Leaning Republican 51-60%

California (Barbara Boxer)

Colorado (Michael Bennet)

North Dakota (Byron Dorgan)*

Washington (Patty Murray)

Nevada (Harry Reid)

Delaware (Ted Kaufmann)*

West Virginia (Carte Goodwin)*

Illinois (Roland Burris)*

Arkansas (Blanche Lincoln)

Wisconsin (Russ Feingold)

Pennsylvania (Arlen Specter)**

Indiana (Evan Bayh)*

Missouri (Kit Bond)* Seats Now Held by Republicans

Likely Republican 60-80%

Ohio (George Voinovich)* North Carolina (Richard Burr) Florida (Mel Martinez)*

Lousiana (David Vitter) New Hampshire (Judd Gregg)* Kentucky (Jim Bunning)*

Source: Capital Alpha estimates

* Retiring ** Defeated in primary

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

25

James Lucier Managing Director Capital Alpha Partners, LLC +1.202.548.0072 james.lucier@capalphadc.com

Robert Kaminski Associate Director Capital Alpha Partners, LLC +1.202.548.0464 robert.kaminski@capalphadc.com

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.