Famous hedge-fund manager David Einhorn recently did something I find a bit curious. According to the recent third-quarter filing for his firm, Greenlight Capital Inc., he completely liquidated his position in a big-name company that, despite recent troubles, is still a superpower in its industry.

Einhorn established the position less than a year before selling, reporting the purchase of nearly 2.5 million shares (worth roughly $109 million) in the fourth quarter of 2010. It appears he bought the stock as a value play in the aftermath of the Gulf oil spill, based on a somewhat vague letter to Greenlight shareholders, noting the purchase was made “at a 25% discount to peers.” He didn’t provide much detail about the reasons for the sale, either, citing only concern about falling energy prices and the need to make room for new opportunities. He did note, however, that he broke even on the sale.

As you may have guessed, I’m talking about integrated oil and gas giant BP (NYSE: BP). You may be particularly interested in Einhorn’s approach to the stock if, like him, you bought it as a value play after the Gulf oil spill. Even if you don’t own BP now, then you may be thinking of buying it soon. But you can never go wrong by factoring in the approach of one of the world’s leading investors.

Despite Einhorn’s reputation, the reasons he gave for selling BP left me with a couple big questions. First, if falling energy prices were such a concern, then why didn’t he also liquidate other energy holdings? In fact, he actually augmented his position in Marathon Oil Corp. (NYSE: MRO), building it up to nearly 2.2 million shares from about 1.5 million previously. Second, I’m wondering what might have made BP so unappealing to Einhorn that prompted him to liquidate the entire position?

I did some research to shed some light on this question, and here’s what I found…

In terms of future profitability, BP is iffier than competitors due to uncertainty about the Gulf spill’s final effect on the company’s bottom line. Still unknown, for example, is how much BP will end up paying in civil penalties in addition to the $20 billion claims trust the company established to compensate individuals and businesses harmed by the disaster. Rough estimates by analysts suggest civil penalties could exceed $12 billion, with BP being responsible for 75%, or about $9 billion. However, the company already recouped a good chunk of this in a $4 billion settlement with Anadarko Petroleum Corp. (NYSE: APC), a 25% co-owner of the oil well that caused the spill.

The Gulf disaster aside, I’m worried about BP’s ability to grow production and reserves going forward. Production is declining in the firm’s mature Alaskan fields, and whether it will be able to achieve pre-spill production levels in the Gulf of Mexico remains to be seen, since drilling permits are now much harder to come by. Furthermore, BP was counting heavily on a partnership with state-owned Russian oil giant Rosneft for future growth, and such a partnership would have opened up the Russian Arctic to BP for exploration. But Rosneft instead went with Exxon-Mobil Corp. (NYSE: XOM) in a deal announced Aug. 31. BP’s attempt to team up with Rosneft failed because its existing 50/50 partner in Russian operations — a consortium of Russian billionaires — had the alliance blocked in court.

Risks to Consider: Clearly, BP is fraught with risk right now, from uncertainty about the magnitude of its Gulf spill liability to the ability of its Russian partners to interfere with strategic investment decisions.

Action to Take–> I think shareholders are better off dumping this stock, just like David Einhorn did. It’s just not worth the risk, especially when you consider analysts are forecasting a large decline in annual revenue growth, from 13% a year for the past 10 years to around 5% a year for the next five years. Annual earnings growth is expected to drop, too, from 5.5% for the past 10 years to 3% or so in the next five years. Because civil penalties for the Gulf spill are likely to be in the billions, annual dividend growth may fall off greatly, from 6% for the past 10 years to perhaps only a percent or two in the next five years.

If you don’t hold BP but are thinking of buying, then at least wait until the middle of 2012. By then, it may be clear exactly how much the company will owe in civil penalties for the Gulf spill. Then, you’ll be in a better position to evaluate its investment merits.

That said, I don’t think you’d have to look too hard to find better alternatives. Exxon-Mobil, the victor in the race to team up with Rosneft, is just one of many possibilities.

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