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There is a lot of politics involved in climate targets and country leaders need big institutions to stand up.
On the other side of that coin, what is the potential for a large international oily to bid for BP and import the management team and green strategy? Eg. could Exxon build its green strategy by acquiring BP or Aramco build a moat around its oil whilst greening?
MarkGo
You are right about Eni's dividend and I did mention that in my post. However, Mojo correctly points out that it didn't have much effect on Eni's share price. BP's strategy is to return to the pre-pandemic level of distributions via buybacks, which would require roughly $4bn of share purchases per annum in addition to the fixed dividend.
The one share that has done well off the back of its results is RDS but, interestingly, some of the share price moves in recent days seem to be being affected by the share buybacks (that will total $2bn over during H2).
Everyone is saying buybacks are a terrible idea (and, frankly, I would much prefer tax-free dividends in my ISA) but there are many US tech companies that have used buybacks for years to return cash very successfully e.g. Apple. What matters to the market is not dividends v buybacks but the ability of BP and other oil companies to generate reliable, robust cash flow through the cycle to distribute to shareholders. It's fair to say, in BP's case the market is nervous of how much cash flow will need to be diverted to the transition (whereas US supermajors are far more conservative and reluctant to commit to green).
However, many people (including myself) have been seeing the green stuff as a waste of capital that could and should be paid out to shareholders. However, what if we are wrong? What if Looney is able to build a highly successful, renewables business of scale with the capital expended on the transition. In five years, those of us still holding may be singing Looney's praises.
Let's hope we get more clarity on the transition strategy and the monetisation of green investments over time. I think this is one area Looney could communicate better and present a clearer commercial model to woo the market.
All IMHO / DYOR
Best
Happy
Looking at eni price from friday not much of a rise in the face of returning divi to previous levels.
Good analysis Happy but here's the difference.
Dividends returned to pre- covid levels.
https://oilprice.com/Latest-Energy-News/World-News/Eni-Boosts-Dividend-To-Pre-COVID-Level-After-Strong-Q2-Earnings.html
Happyinvestor100. Concur 100%. Bang on the money!
Anyone who think Looney's strategy can't work should pay heed to ENI's results last week.
ENI's market cap is roughly $40bn and its net debt it $12bn giving an enterprise value of $52bn. So, roughly its half the size of BP. Like BP, ENI is pursuing a pivot to renewables and currently has installed capacity of >1GW with planned target capacity of >15GW by 2030 (BP hopes to reach 25GW by 2025 and 50GW by 2050). ENI has a strategy that is strikingly similar to BP's: invest in rapidly growing renewables and retail pillars, and offer integrated energy solutions to environmentally-minded customers; right-size the oil and gas business focusing on margin and cash flow; and increase returns to shareholders while transforming.
ENI announced blockbuster results last week, notably:
- Excellent cash flow from operations (CFFO) of $2.8bn (and $4.8bn over H1 - noting BP generated $6.1bn in Q1 alone!);
- Restoration of dividend to the PRE-PANDEMIC level AND $400m buyback for 2021; and
- Positive EBITDA contribution from its retail and renewables business.
The press widely (and rightly) hailed the results as exceptional. Please visit the ENI website and check out the excellent slides and presentation materials (which I am still working through!):
https://www.eni.com/assets/documents/eng/investor/presentations/2021/2q-2021/2021-second-quarter-results.pdf
Note, ENI is roughly 20% off its pre-pandemic SP while we are still 40% off.
If ENI can do it, so can BP. As Barclays have said BP is the most misunderstood supermajor. When the market gets it, we will leave this rating far behind (remember a Chevron of the oil world and an Orsted of the renewables world!). As for criticism of Looney (some of which I think, at least on the messaging front, is justified), please remember he was the chief executive officer of upstream during one of BP's most successful periods of project growth and negotiated the deal to buy BHP's shale assets. He knows the oil and gas business inside out and far better than any of us.
All Strictly IMHO / DYOR
Best
Happy