Coming as no surprise, the headlines stated that oil giant BP (NYSE:BP) reported a "record loss" for the 2010 second quarter. At the center of one of worst oil spills in history, BP has spent billions trying to fix a gushing well that has been spewing oil into the Gulf of Mexico for months. During the second quarter BP reported a loss of $17 billion in part due to $32 billion charge as a result of the oil spill.

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Not Over Yet
Even though BP seems close to stopping anymore oil from leaking, the final tab for clean up, restoration and liability is yet to be determined. Many feel that the total tab will easily exceed $32 billion. The $17 billion quarterly loss compares against a $4.4 million profit in the year ago quarter. However, if you look at the cash flow from operations, BP brought in nearly $7 billion in the quarter.

Going forward, BP is going to be a much smaller company. The company has agreed to sell $30 billion worth of assets including a $7 billion worth to Apache (NYSE:APA) and further asset sales will likely continue. In addition, the company recently removed CEO Hayward and replaced him with Robert Dudley, an American who was a Managing Director at the company.

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Wait and See
Patient investors may find the long-term to look very favorable to BP. As hard as that is to believe, just look at ExxonMobil (NYSE:XOM) which prior to merging into its current firm was responsible for another huge oil spill. To be sure, the current spill is significantly larger but BP's resources are also a lot deeper than Exxon's resources 20 years ago. While the current costs of the oil spill will render today's P/E of six inaccurate, BP could revert back to normalized earnings of $14 to $20 billion in 2011. That would still imply a lower valuation than Exxon currently trading at 14 times earnings or Chevron (NYSE:CVX) at 12 times.

Even if a smaller BP was earning $12 billion a year a P/E of 12 would still get you a higher share price than today. Of course there are a lot of "ifs" and "whens" in this outcome, but many value seeking investors have jumped in for similar reasons.

The Future of BP
BP will be forever changed as a result of this oil spill. The company will lose some assets as it sells to raise cash to pay its obligations as a result of the oil spill. But if history is any guide, BP's current fate is only temporary. (For more, see The Value Investor's Handbook.)

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