Will the BP share price keep rising in 2022 and beyond?

The BP share price has risen by 55% in one year. Can this FTSE 100 heavyweight continue climbing — or is this the top? Roland Head investigates.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Key points

  • The BP share price is up 55% in 12 months
  • Profits have been pumped up by high oil and gas prices
  • It also has a growing focus on low-carbon energy

The BP (LSE: BP) share price has risen by more than 55% over the last year, as oil and gas prices have soared. This FTSE 100 stalwart generated an underlying profit of $12.8bn last year — the highest for eight years.

BP’s recovery has come as it’s promised to cut oil and gas production and invest more in low-carbon energy. I’m wondering if buying BP shares for my portfolio would enable me to profit from oil today and renewable energy in the future. Here’s what I’ve decided.

Changes are coming… slowly

Oil and gas production that was cut during the pandemic has not yet been fully restored. However, demand has bounced back strongly as life has returned to normal around the world. This has led to high oil and gas prices, with bumper profits for big producers like BP.

Although the company plans to cut oil and gas production by 40% by 2030, cash profits from this part of the business are expected to remain stable, at $30bn-$35bn.

This compares to expected 2030 profits of $9bn-$10bn from service stations, and just $2bn-$3bn from renewable energy.

These numbers suggest to me BP is still likely to make around three-quarters of its profits from oil and gas by 2030. This 110-year-old business isn’t going to abandon petroleum too quickly.

I’m watching the cycle

I think BP is performing well at the moment. But I’d guess that’s not difficult to do when oil and gas prices are trading at their highest levels since 2014.

History tells me that the oil and gas market is heavily cyclical. Unfortunately, BP does not have a great record of creating value for shareholders over the cycle. Today, BP’s share price is lower than it was both five and 10 years ago.

Over the last 20 years, BP shares have underperformed the FTSE 100 by a whopping 80%, excluding dividends.

Of course, past performance is no guarantee of future results. But BP’s latest guidance suggests to me that the company expects to see lower oil and gas prices in 2022, as supply and demand return to balance.

I also think it’s significant that the company plans to limit annual dividend growth to just 4%. Any extra surplus cash will be used for share buybacks, which have the effect of boosting future earnings per share.

BP share price: my decision

My sums suggest BP’s profits are likely to peak this year, before falling slightly in 2023. Broker forecasts suggest a similar view. I think that BP’s share price could rise further in 2022, but I don’t expect to see big gains beyond that.

BP shares are expected to deliver a return of around 8% per year from now on, based on the sum of the stock’s 4% dividend yield and expected 4% annual dividend growth.

An 8% return is in line with the long-term average from the UK market. However, given the uncertainty about BP’s long-term prospects, I’d prefer to buy the shares at more of a discount. For this reason, I won’t be buying BP shares at the moment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

£2k in savings? Consider putting it here for maximum passive income

Where’s the best place to park a £2k lump sum for maximum passive income? This Fool knows exactly where his…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Where will the ITV share price go in 2025? Here’s what the experts say

The ITV share price has been heading up and down as the TV producer and broadcaster has been making the…

Read more »

Investing Articles

3 rules I followed to start investing

Christopher Ruane shares a trio of considerations he used to start investing in the stock market -- and continues to…

Read more »

Investing Articles

UK investors are obsessed with Nvidia stock! Here’s why

This writer considers a few reasons why Nvidia stock has gone up so dramatically in recent years and whether he'd…

Read more »

Investing Articles

Cheap FTSE 100 shares to consider buying after the Black Friday sales

Whatever bargains retailers are offering for Black Friday, stock brokers aren't joining in. I reckon I see enough cheap shares…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

P/E ratio of 6! Is the Centrica share price a bargain?

This writer reckons the current Centrica share price could be a real bargain. But as a former shareholder, will he…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

What sort of British companies has Warren Buffett invested in – and why?

Warren Buffett has fished on both sides of the pond over the decades in a hunt for bargain shares. Our…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

Here’s how I’m investing in dividend shares to aim for long-term wealth

Our writer plans to turn investments in dividend shares into a retirement pot by implementing a structured, long-term approach.

Read more »