At the start of 2024, I was very bullish on the energy industry. However, except for ExxonMobil, which eked out a small gain, the share prices of all the oil supermajors were down. By far the worst performer was BP (LSE: BP.). So is it time for me to sell out and put my hard-earned cash to work elsewhere?
Renewables
The principal reason I believe for the company’s continued share price weakness is that the market remains unconvinced over its investments in renewables.
Over 20 years’ ago, its former CEO, Sir John Brown, rebranded the company as ‘Beyond Petroleum’.
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Under the stewardship of Bernard Looney, the company began ramping up investments in renewables, just as the energy crisis began unfolding. Although its share price has doubled off of its Covid lows, ExxonMobil (which stayed away from them) has seen its share price more than triple.
The present CEO, Murray Auchincloss, has signalled that he wants to take a more pragmatic approach toward the energy transition. On taking the reins he said: “We must remain flexible, adjusting in line with changing demands and societal needs”.
Share buybacks
Another major reason for its share price weakness throughout 2024 is the company’s share buyback policy.
Over the last few years, it has bought back over a 20% of its entire stock. But its balance sheet has continued to deteriorate with net debt creeping up.
In response to the charge that the policy isn’t enhancing shareholder wealth, it says it doesn’t “slavishly focus on net debt and is more focused on credit rating metrics”. Today, it has an A+ rating, but has no plans to move up to AA.
However, during its Q3 results in October, it signalled to the market that a major change to its share buyback policy will be announced during its full year results, which will be released next month.
I remain bullish
Despite all these negatives, I have no intention of selling my holdings in BP. Firstly, I don’t let one year’s poor performance drive my investment decisions. Over the long run, that’s a sure-fire way to lose money.
The energy transition will undoubtedly accelerate over the coming decades. But will that effect demand for hydrocarbons? I personally don’t believe it will.
Trying to model the energy mix way into the future is an impossible and, I would argue, fruitless exercise. What I do know is that demand for energy is growing on multiple fronts.
Regarding the US, we’re on the cusp of a complete 180 degree switch in energy policy when Donald Trump becomes President. However, his mantra of “drill baby, drill”, may not be as easy as many think it will be.
Capital investment across the industry has been supressed for so long, that bringing new supply online quickly to meet demand from the likes of AI, data centres, and a manufacturing renaissance in the West, could well lead to supply shortages in the years ahead.
For me, energy’s life. That is why if I had any spare cash, I wouldn’t hesitate to buy more BP shares for my Stocks and Shares IS today.
