Is it time to buy BP?

We knew it was coming. And now the news is out there. BP won't be paying a dividend this year.

And it's putting $20bn over four years into a fund to meet compensation claims and clean-up costs for the Deepwater Horizon disaster.

It's now been almost two months since the rig blew up. During that time, the estimates of the amount of oil spilling into the Gulf have soared. And BP's share price has near-enough halved.

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For investors or potential investors the big question now is: does this mark the beginning of the end? Or is there worse to come?

BP can afford this $20bn compensation fund

Let's make one thing clear right away. The $20bn that BP is putting into a compensation fund is just a down-payment as far as the White House is concerned. Barack Obama has been at pains to emphasise that this does not mark any sort of cap on BP's liability.

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Now, it might be enough to cover all the costs. Jason Kenney at ING Wholesale Banking tells Bloomberg: "The hope is that it's far too much for what is actually going to be required. This doesn't mean the downfall of BP; it can get through this."

But a cynic might argue that when you stick $20bn in a compensation fund, the lawyers and claimants then see it as a target to aim for, rather than any sort of limit. And analysts elsewhere are less confident Credit Suisse has suggested the final bill could be $49bn.

However, the good news is that BP can afford this $20bn. It's putting $5bn in this year, then the rest over four years. As well as stopping the dividend, BP is going to reduce investments in drilling and will sell some of its oil and gas fields.

And at least it has now made some sort of deal with Obama. The company is not on the verge of going bankrupt. And it would certainly be stupid for the US government to kill off the cash cow that will be paying for this mess by confiscating its assets or kicking it out of the US.

BP is not the same stock as it was before the spill

So what's our take on the stock? Well, let me digress for a moment bear with me, this is relevant. If you're anything like me as an investor, then you've probably got your 'sensible' money. That's the money you put into your long-term investments, your pension money, the 'boring' investments, for want of a better word.

And then there's your not-so-sensible fund. This is the money you use to chase the ten-baggers, the speculative little biotechs (those happen to be my weakness) or junior miners or oil explorers. All or nothing stocks that might come good or might just lose you all your money.

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I'm sure you all recognise this you've got your retirement fund and then you've got your gambling money. Why am I telling you this? Because it's very relevant to how you treat an investment in BP right now. I made this point in the weekend MoneyWeek round-up and it still stands. Whether or not BP is now a buy, it's not the same stock it was before the spill.

Before the spill, our main worry about BP was whether or not the global economy would support a high enough oil price for the company to maintain its dividend. Based on that concern, my colleague David Stevenson suggested that investors not already in BP should be wary about picking it up, although if you already held it, it wasn't a big enough threat to sell.

Now of course, the nature of the story is entirely different. We know that BP's not going to pay any dividend this year. The question now is, is it low enough to have a punt on? The price has bounced nearly 7% this morning to about £3.60. But my gut instinct is that, yes, down here, BP is cheap enough to risk some money on.

But the point is, if you are going to risk it, you should be betting on BP with your punting money, not with your long-term investment cash. BP is no longer up there with the GlaxoSmithKlines and the Johnson & Johnsons of this world. It's now much closer to those binary-bet stocks, where one wrong move can send the whole thing spiralling into disaster.

Until the leak is plugged, there's an awful lot that could go wrong

Sure, this $20bn sacrifice should at least enable BP to start putting an end to the political nightmare and start fighting its corner a bit. And certainly, many analysts see it as drawing a line in the sand.

But don't imagine it's all going to be sweetness and light from here. Chief executive Tony Hayward still has to stand in front of Congress today and take a theatrical kicking from politicians trying to show how tough they are. And BP chairman Carl-Henric Svanberg is already getting it in the neck in various media reports because he said, after the $20bn fund was announced, that BP cares about "the small people." Sure, it's patronising, but bear in mind that the man's first language is Swedish.

(It does make you wonder if BP actually employs any communications management or PR people at all, and if it does, what on earth they've been doing for the past two months. I'd suggest that any cost-cutting starts off somewhere in that department).

But none of this helps BP to plug the dirty great hole in the ocean floor that's chucking all this oil out. And until the leak is dealt with, we can't really talk about drawing lines under anything. There's still an awful lot that can go wrong for the company here. And that's before the lawyers really get their mandibles stuck into the story.

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