In this case Run to Failure is a book about BP and the numerous disasters it has been part of for the past 15 years. The book is written by Abraham Lustgarten published by  W.W. Norton & Co, NY 2012. If you own a pipeline company or an oil company shares or are skepitcal of the industry, Mr. Lustgarten’s book offers you a variety of insights to look at the companies. In BP’s case, the book focuses on 3 major accidents – the Alaska Pipeline leaks, the Texas City refinery fire and Deepwater Horizon off the Gulf Coast and one of the driving forces behind the incidents was senior management drive to cut cost. Mr. Lustgarten agrues well that the focus of cutting costs caused structural harm to the infrastructure. In the oil industry after a discovery has been made at some point the recovery of oil will decline, however to move the oil from the well to a refinery takes a great deal of pipes or infrastructure. In the first 20 years, little should go wrong with the pipes – they are new. It is the next 20 years and beyond that needs to be worried about. In the case of BP, they cut their maintenance budget of the pipelines and things happened – oil leaked, people were injured and died, money was not spent.

Linking to dividend paying stocks, two of the best companies to own are utilities and oil companies. They have proven to generate dividends and are semi regulated by the government which means they fill a need as expressed by the government. If you own these companies, one method of doing your homework is to be cynical, in the case of BP those that received bonuses were rewarded when they slashed budgets. In your homework focus on how people receive bonuses – is it for cutting costs past the bone? generating revenues? what does management reward? If the company you own has a  great deal of infrastructure – how is being kept up? All utilities report to the government, are the incidents higher or lower?

There are more questions than answers, till the next time – to raising questions