It is also remarkable that the total liabilities BP has paid so far for its accident are nearly equal to the total earnings of the company ($73.8 billion) since 2011. In other words, the liabilities for the accident have nearly offset all the earnings of the oil major over the last decade. OPEC’s forecasts indicate a sharp drop in world oil inventories, with a projected decline of around 3.3 million barrels per day in the next three months, potentially the largest since 2007, as analyzed by Bloomberg based on OPEC data.

There should be a differentiation in valuations within the energy sector as to businesses that have high stranded asset or regulatory risk, and those which will be low carbon businesses in the future. At the heart of BP’s reinvention is a reduction in oil and gas production and simultaneous growth in its renewables business. Looney promised investors he could do this while delivering returns of 8% to 10%. That’s not as high as the double-digit returns oil developments can sometimes bring in, but greater than many clean-energy projects. BP share price has lost its bullish momentum as the price of oil and gas recoils. The stock has also dropped as investors price in the possibility of a recession in the coming months.

Given also the extremely generous dividends of BP over the last decade, it is easy to understand how the oil major has accumulated an excessive debt load. During boom times, the market may almost ignore the debt of a company but during downturns, such as the ongoing one, a high debt load weighs heavily on the stock price. This is the part of the business plan of BP that has caused panic in the market. When a company shifts from its core business, in which it has decades of experience and thus great expertise, to a new business, it causes panic to the investing community due to the great uncertainty that results from this shift.

BP also said it expects to pay $1 billion under a UK windfall tax on the oil and gas sector between May 2022 and April 2023. BP had the most catastrophic accident in the history of the oil industry in the Gulf of Mexico, in 2010. As the accident occurred a decade ago, most investors have completely forgotten about it, thinking that it does not affect the stock of BP anymore. The pandemic is the primary factor behind the material losses of BP this year but the collapse of the stock near its 25-year lows cannot be attributed solely to the pandemic per se. On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the “Value” category.

Confirmed: BP CEO Bernard Looney resigns over ‘personal relationships’ with colleagues

BP had reported a $6.25 billion profit in the first quarter of 2022, on its way to a record $28 billion annual figure. Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016. Below you’ll find our previous coverage of BP stock where you can track our view over time.

To put a number on that, BP’s debt-to-equity ratio has spiked to 1.1 during the current energy downturn. That’s higher than any of its closest peers and over four times higher than Chevron (CVX 1.86%). Although European energy companies tend to hold more debt and more cash than U.S. peers, BP’s leverage is extremely high. The big new direction at BP, meanwhile, sounds pretty much like a complete corporate overhaul.

Any opinions, news, research, analysis, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. What followed has to be one of the biggest ever U-turns in global energy policy. Only a couple of months ago, policymakers were setting out plans to reduce global hydrocarbon production for good, but now they’re rushing to drive up supply. BP said it expects oil and European gas prices to remain strong in the second quarter even as refining profit margins are expected to weaken due to lower diesel prices. To conclude, BP is currently facing a perfect storm, partly for its own sins and partly for reasons beyond its control.

• Except dividend-focused investors have had to, once again, suffer through a dividend cut as BP changes gears.
• Moreover, due to the slump in the demand for refined products, the refining margin of BP fell 61%, from $15.20 in the prior year’s quarter to $5.90, and its refinery utilization plunged from 89% to 70%.
• When OPEC forecasts a supply shortfall, it suggests that global oil supply may be constrained relative to demand.
• Since the accident, BP has paid approximately $70 billion for its liabilities.
• The big new direction at BP, meanwhile, sounds pretty much like a complete corporate overhaul.
• Therefore, the stock will likely bounce back since a falling wedge is usually a bullish reversal sign.

Getting BP into a position where it can deliver profits from large-scale renewable energy projects will require lots of upfront spending. The company made a $1.1 billion splash in offshore wind earlier this month, buying a stake in developments owned by fellow oil giant Equinor. His style has been heavily influenced by US investors Warren Buffett and Philip Carret.

In 2019, nine years after the accident, BP paid $2.4 billion (24% of its earnings) for the accident. Therefore, the accident continues to burden the cash flows of BP significantly. Investors should also pay attention to BP’s average 20-day trading volume.

AMC Stock Price Forms Bullish Divergence – Is The Bottom In?

For example, the International Energy Agency (IEA) believes that the soaring prices will lead to demand destruction, which will lower prices. However, in a separate report, Energy Aspects believes that oil will rise to $130 per barrel. The firm’s business has been helped by the relatively higher demand around the world.

Even if oil and gas prices do fall, economic activity will pick up and BP’s refining margins would likely increase. Regardless of the exact path of performance across BP’s integrated set of energy businesses, the stock’s extremely low valuation compensates for these risks. The Brent crude https://bigbostrade.com/ oil benchmark has jumped to $120 a barrel, returning to levels not seen since 2008. Meanwhile, natural gas prices in the US are up by nearly 160% in the past 12 months (while in the UK and European markets prices have risen by 150% and 227% respectively – gas is not a global market).

Despite tightening market conditions, Saudi Arabia has prolonged an additional 1 million-barrel-per-day output reduction until year-end. But for the outlook for 2023, with a slowing global economy, hawkish monetary policy the world over, and high inflation in my opinion not being temporary, quality energy companies are a good place to be. Afterall, Warren Buffett has large stakes in Chevron (CVX) and Occidental Petroleum (OXY).

Ron has covered since 2014 the world’s top oil and gas companies, focusing on their efforts to shift into renewables and low carbon energy and the sector’s turmoil during the COVID-19 pandemic and following Russia’s invasion of Ukraine. Before Reuters, Ron reported on equity markets in New York in the aftermath of the 2008 financial crisis after covering conflict and diplomacy in the Middle East for AFP out of Israel. Moreover, the liabilities of BP for its catastrophic accident in 2010 have essentially erased all the earnings of the company throughout the last decade. In addition, they still consume a significant portion of the cash flows of the oil major every year.

He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks. They’re making money today, but investors shouldn’t forget the fact that these two businesses jointly announced some of the largest losses in British corporate history in 2020 after the price of oil briefly turned negative. And these hefty losses forced both companies to reduce their shareholder payouts, underlining the fragile nature of oil company dividends.

Besides, if the Republicans win the presidency in the U.S., that is likely to be favorable for companies like BP, and the gridlocked U.S. government is likely to be favorable for BP’s large U.S. business over the next two years too. It has a clear focus to decarbonize, but if the world slows down its transition to net zero due to energy security concerns, given the Russia situation, then BP reliable hydrocarbon business will be valued more. While energy transition was the buzzword in the sector for at least the last five years, the new buzzword is “energy forex candlestick patterns trilemma” the balance between energy security, energy affordability and energy sustainability. BP’s quarterly results, reported earlier in November, highlighted the firm continues to make great progress in improving its financial position, as one argument BP in the last few years has been its high debt. Net debt has now fallen for 10 consecutive quarters and is now a third lower than at Q2 results in 2021. The net-debt-to-equity ratio is only 30%, which means BP is less exposed to the higher interest rate environment we are going to find ourselves in.

When you add it all up, BP doesn’t look like a particularly great choice in the energy patch right now. For investors still looking for an oil play, conservatively financed Chevron is probably a better option. It’s entirely possible that BP pulls off its big plans for change without a hitch. But most investors would probably be better off watching that transformation safely from the sidelines for now.

The supply and demand imbalance has sent prices surging

This metric is found by dividing a stock’s price with the company’s revenue. Some people prefer this metric because sales are harder to manipulate on an income statement. This stock’s P/B looks solid versus its industry’s average P/B of 1.53.

The cash saved from cutting the dividend will be used to help fund the shift in its business. Except dividend-focused investors have had to, once again, suffer through a dividend cut as BP changes gears. If you are trying to live off of the income your portfolio generates, BP has proven for a second time that you can’t really put much faith in its quarterly dividend check. Even if the oil price does fall, it needs to fall more than one third before it puts any pressure on BP’s cash distribution plans.

Looking at the next fiscal year, 5 estimates have moved upwards while there have been 1 downward revision in the same time period. Below, we take a look at BP (BP), a company that currently holds a Momentum Style Score of B. We also talk about price change and earnings estimate revisions, two of the main aspects of the Momentum Style Score.

BP falls Thursday, underperforms market

Therefore, the stock will likely bounce back since a falling wedge is usually a bullish reversal sign. If this happens, the next key resistance point to watch will be at 400p. Data are provided ‘as is’ for informational purposes only and are not intended for trading purposes. He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service. He has been an active investor since leaving school and has always been fascinated by the world of business and investing.

Indeed, the respected International Energy Agency forecasts that global oil demand will increase between now and 2030. This should spur BP’s financial performance at a time when energy industry capital expenditure will be biased towards renewables and away from oil and gas exploration. Indeed, BP has axed new exploration outside of areas where it already has licenses, reserves and resources. With a dividend yield of over 4% and a trailing EV/EBITDA ratio of 3.8x and forward EV/EBITDA ratio of 2.4x, I can’t quite believe the cheapness of this stock. While the oil and gas sector is challenged in many ways, BP is a leader in the sector in changing direction away from high carbon businesses to low carbon businesses.

When OPEC forecasts a supply shortfall, it suggests that global oil supply may be constrained relative to demand. In order to see if BP is a promising momentum pick, let’s examine some Momentum Style elements to see if this oil and gas company holds up. While many investors like to look for momentum in stocks, this can be very tough to define.

Energy has been by far the best-performing sector this year, in fact one of the very few industries that’s up on the year. That’s obviously because of high oil and gas prices, so is it too late to get in? For some energy stocks maybe, especially if their long term strategy is not aligned towards the energy transition. BP laid out its energy transition strategy – from integrated oil company to integrated energy company – more than two and a half years ago.

Some analysts are now speculating that oil prices could hit $180 or more in the months ahead. BP’s recent financial performance has been supported by higher energy prices, which climbed to over $120 a barrel earlier this year and currently Brent, the international benchmark trades at $93/barrel at time of writing. With no end in sight to the Russia-Ukraine war, Russia’s exports are unwanted in much of the world, putting a real supply strain on oil markets.

Shares are looking quite well from a longer time frame too, as the monthly price change of 22.51% compares favorably with the industry’s 9.46% performance as well. It is also useful to compare a security to its industry, as this can help investors pinpoint the top companies in a particular area. It’s not a great picture when you look at key industry metric return on capital employed (ROCE). As the chart below shows, for the past decade, BP’s ROCE has been at or near the bottom of its peer group. BP’s strong cash flow is giving it dry powder to speed up its net-zero carbon pace and align itself with strong ESG credentials.