I can see loads of reasons why the BP (LSE: BP) share price should be flying today. The energy shock has shown us how dependent we still are on fossil fuels.
Oil supply is tightening, as Saudi Arabia cuts production again. Earlier this month, the FTSE 100 oil explorer and producer hiked its dividend and announced yet more share buybacks.
Despite all these positives, the BP share price is down 15.44% over six months, with Q2 attributable profits crashing 78%, from $8bn in Q1 to $1.79bn.
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It’s not doing so well
Reduced refining margins and planned maintenance activities were largely to blame, along with declining energy market volatility. BP still managed to offend activists for profiteering and its feeble commitment to renewables. So nobody was happy.
It’s now more than a decade since the Deepwater Horizon disaster in 2010, but BP shares have had a bumpy 10 years. In August 2013, they traded at around 442p. Today, I can buy them for 473p. That’s a rise of roughly 7% in a decade.
Nobody expects shares in FTSE 100 giants to shoot the lights out, but this is still disappointing.
Investors will be nicely ahead overall having received plenty of dividends. Also, BP has also enjoyed a number of share price spikes in that time. It’s up 7.12% compared to 12 months ago, outperforming the FTSE 100 which fell 3.36%.
Now the outlook looks tough. The Chinese economy is in a mess. The US is hovering between a hard and soft landing. A global recession cannot be ruled out. Weakening demand outlook has just killed what trader IG calls a “seven-week bullish streak in the oil price”. Yet Brent crude is holding firm at $85 a barrel. That’s higher than BP’s $60 forecast and comfortably above its $40 break-even price.
I grew accustomed to BP shares yielding north of 6%. However, the dividend per share was slashed from 41 cents to 26 cents in 2020 after a record-breaking $6.7bn loss. BP paid 24 cents in 2022 and City analysts now reckon that will climb to 27 cents this year and 28 cents in 2024.
The forecast yield is more promising at 4.6%, nicely covered 3.2 times by earnings. Investors should also benefit from share buybacks, with $4bn a year targeted.
This oil stock isn’t for me
Set against this, BP has hefty net debt of $23.7bn, up 11.4% on a year ago. This also weighs on the share price. It will remain controversial as CEO Bernard Looney appears to go cold on plans to reinvent BP as a lower-carbon company (I’m not sure he was ever that hot).
This summer has been marked by extreme weather. However, it has also seen a growing resistance to net zero, and Looney seems to be taking advantage. This reduces energy transition costs and may boost short-term profits. However, it also increases the danger that BP will one day prove a relic of the oil age.
I won’t be buying BP shares today. Plenty of FTSE 100 stocks give me higher yields with less risk. Most are less controversial and have less debt, too. A lot has gone wrong for BP share price. I don’t expect things to suddenly go right.
