The oil price was hit again last week because of trade wars and Saudi Arabia getting its production back on track, most of the oil majors were down. The week also saw the FTSE hit hard by concerns of a global economic slowdown and further trade tariffs imposed by the US. Â
BP also had an interesting week and made headlines for both negative and positive reasons but finished the week with its share price edging upward.
Climate change
The BP share price has had a volatile few years as it battled through a very challenging period, dealing with the aftermath of the Deepwater Horizon tragedy, the oil price collapse and increasing climate change pressures. Last week it was ditched by The Royal Shakespeare Company as its sponsor of cut-price tickets. It’s increasingly out of favour with millennials as climate change awareness makes companies like BP, and rival Shell, in some ways the pariahs of the stock market. Shell was subsequently discarded by Britain’s National Theatre, which ended the partnership in an effort to align with its broader climate emergency initiative.
However, the oil giants say the world needs big companies like them to carry out vital research and development in renewables with the money, resources and assets they have at their disposal. It is also very much in their interest to work to solve the climate change problem and save the planet as we know it before it’s too late.
BP has been around for over 100 years and has lived to tell the tale. It is actively branching into cleaner areas such as biofuels, solar projects and electric car chargers. It has also invested $30m into Calysta, a company aiming to reduce carbon emissions in the agriculture and aquaculture market.
As the curtain went down on the theatre ticket sponsorship deal, a new CEO was announced. Bernard Looney has been tipped as the man to win over millennials but with climate change pressure mounting from the general public, investors and politicians, he’s got a tough job ahead of him. Currently head of Upstream, Looney has been with BP since 1991 and will be replacing Bob Dudley, who leaves next March.
Appeal to investors
BP’s biggest incentive is its dividend, one of the best on the FTSE 100 with a yield of 6.7%. It was the first major European energy company to resume buybacks after the 2014 oil price crash giving shareholders the option to have the buybacks paid to them as additional dividends. Earnings per share are £2.63 and its price-to-earnings ratio is relatively low at 14.
In February, BP claimed wind, solar and other renewables will account for 30% of the world’s electricity supplies by 2040 and up to 50% in Europe. Mostly driven by the falling costs of wind and solar power, government policies and technological change. With oil demand expecting to have declined by 2030, BP needs to continue its diversification strategy. However, the firm also expects global demand for oil to have increased from 100m barrels a day today to approximately 130m by 2040. The world’s population is increasing as is the demand for fossil fuels from developing nations.Â
It can’t quit oil and gas overnight, so I think BP is doing the best it can to gradually diversify into renewables while still doing what it does best in oil and gas.