Courthouse Showdown: How to Profit From BP's Legal Travails

For those that love legal dramas or enjoying watching real life court cases play out on various cable networks, 2012 has the potential to be a rather pleasurable year. After all, litigation pertaining to the 2010 Gulf of Mexico oil spill, the largest oil spill in U.S. history, gets under way and these proceedings could have profound impacts on the shares of Public Enemy #1 BP

along with Halliburton

and Transocean

. Given the sheer size and complexity of this case (BP is facing roughly 600 civil suits), don't expect a final resolution on the legal front for BP until at least 2013. Don't expect Europe's second-largest oil company to go quietly into the night, either. BP took a charge of $40.9 billion in 2010 to cover spill-related expenses and the company has been diligent to say the least about seeking compensation from its Macondo well partners. Just ask

. BP is coming after the world's second-largest oilfield services provider for $20 billion for its allegedly faulty cement job on the Macondo well. The drama won't end there, so here are some ways to profit from what might be one of the most compelling corporate legal cases in recent memory. Long or Short BP? Long if the British oil giant is able to extract settlements out of Halliburton and Transocean, particularly if those settlement figures are of the multi-billion variety. It can be argued that Halliburton and Transocean might want to take a page from Anadarko Petroleum's

book and settle with BP. When Anadarko did that, the stock popped. The bear case for BP exists in the form of how much per barrel the company is fined under the Clean Water Act. According to the

those fines could rise to $20 billion from $6 billion if the company is hit with the maximum $4,300 per barrel fine. What to do with Halliburton... Without the benefit of a crystal ball, no one knows what will come of BP's $20 billion suit against the oil services giant. Hypothetically speaking, if BP won $20 billion from Halliburton, that would cripple the Texas-based firm as its current market value is "just" $31 billion. The toll speculation about Halliburton's potential liabilities in this case has taken on the stock is clear. In the past six months, the shares are down 34% compared to a 20% decline for the iShares Dow Jones US Oil Equipment Index Fund

. And what about Transocean? Let's just say the folks in the Transocean PR department are kept pretty busy and it's rarely with

. The world's largest provider of offshore drilling services has clearly signaled it will fight BP every step of the way, but that's not good for investors. As we previously noted, Transocean's dividend

. Arguably, it would seem that potentially having to dole out tens of billions of dollars to BP could seal the fate of Transocean's payout. Of Course There Are Potential Winners, Too... No, prolonged legal proceedings are not good news for any of these companies, but only time will tell how much pain, if any, must be endured by investors. Actually, no pain has to be endured at all because where there are potential losers, there are usually potential winners. Try the following on for size:

For those looking for a European integrated oil name that is not involved in the GoM spill fiasco, why not go with Europe's largest oil company? Shell's dividend is certainly safer and it's yield is currently higher than BP's. France's Total

is another name to consider over BP.

Let's keep it real: SeaDrill is the

. Along those lines, this dividend is considerably safer. The company's reputation is infinitely cleaner and we love the 9% yield.

A logical choice to move to if Halliburton's shares remain under. Schlumberger is Halliburton's bigger rival and the company isn't involved with the spill proceedings. Better yet, why not try National Oilwell Varco

? While the aforementioned oil services ETF, Halliburton and Schlumberger were all being taken to the woodshed in 2011, NOV gained almost 2%