The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
i can't see bp rolling back the net zero agenda. the whole environment it operates in has on-boarded net-zero from the government to big business to the board at bp. it's for this reason i don't think there will be an "oil man from huston" installed as ceo, it's not in line with the uk's agenda and would result in more of a pushback than the board are willing to personally endure. on the other hand if they double down on the net zero push, all their friends, campaigners and the government will tell them how brilliant they are.
i am still expecting a great result in q3 from bp's trading division. this will push the profit up when combined with the high oil price.
the hedge funds were betting on a recession and shorting oil. unfortunately they also ****ed off mbs who has a lot of control over delivery quantities which i think has led to a physical short squeeze. it's this dynamic that should be the ideal input for bp's trading unit (making a loss for q2 and the profit in q3).
https://www.reuters.com/business/energy/saudi-arabias-energy-minister-warns-speculators-ahead-opec-meeting-2023-05-23/
i still expect a recession so will aim to reduce exposure at some point over the next 6 months - so 100% long at the moment, will be 120% long at results and 50% long in 6 months.
the share buybacks over the last 3 years are having a nice effect on the eps figures now. as someone said the market cap is very low when compared to the oil prices.
"I do believe the new CEO will be an internal candidate, I can't see how a new external CEO can come in and rip up the same strategy that the board signed off"
I guess they are not going to rush this and make the same mistake in the due diligence again.
They will need to find someone internal who has spent all their time at work for BP over the last 20 years that has never had a relationship with another employee. Seems like there is more chance to find someone competent externally. Perhaps they will chose Anja-Isabel Dotzenrath, she will give the right impression of being serious on the transformation to renewables and diversity at the same time.
I am invested with BP as the undervaluation caused by their catalogue of problems (Gulf spill, Rosneft, Renewables, oil production cuts) turbo charges the share buybacks. It would be nice to buy back 10% per year.
I believe that the share price would rise 30-50% if they said they would scale back the renewable investment and increase oil production plus move the primary listing to the US for all the reasons listed below.
Europe/UK have made clear they are no friend of hydrocarbon companies, its a bit like living with people who hate you.
If BP is a company that puts hiring a non male, over finding the most competent person for the most important job in the company, in order to fix an 'industry problem', they are shifting the investment case in the wrong direction.
The risk of the new CEO appointment is enough to stay out for now. The board will be very pressured by the outside to continue down the ESG path and I can imagine they are keen to look like they are deferring to the climate keeping overlords so they are offered lots of other lucrative non-exec jobs.
I haven't sold any but will have a think this week.
DrPatience
What do you mean by US being a sideshow?
Yahoo has average volumes of 7.2m ADR's for US (43.2m equivalent)
and 36.6m for UK
Unless I am reading something wrong.
All my BP trading is currently US based because of the options liquidity even though I am UK based.
UK need to ditch stamp duty on UK share transactions before the LSE dies.
Playing games right to the end. I assume one or the other has not used enough significant figures in their interest calcs. The Burford one looked a bit suspect if they actually calculated using the figures posted
The board sat in a room wanting the share price to increase. They tried to come up with some lateral thinking outside the box.
BP falling on his sword (LOL) was the best idea they could come up with.
Market has answered.
Even an 'unexpected' API inventory build can't stop the oil or BP price rising.
It's good to see the EPS consensus increasing, I was wondering when it would happen as the positivity regarding income hadn't been reflected in the expected numbers.
13% doesn't seem like enough, is anyone else hoping for 2023 guidance to be increased?
I used the opportunity to buy back some short $37 calls I sold. Not my best trade ever but it could have been worse.
If we hit $37 on Friday and they would have expired worthless I will be upset :D
I, like the others on here think it was an over-reaction and we will have recovered in a couple of days. Hopefully BP will buy back some shares in the mean time.
Theaky, for clarity I am very pro-nuclear and we should already have next generation safer reactors that are not pressurised water reactors.
The biggest scandal should be that the green lobby has stopped the one thing that could solve their global crisis.
We have gone back to the wind age from the nuclear age.
I will try to condense the article
Hedge fund 'boss' is short some Hydrogen companies, now publicising his position.
The space is being dominated in the short term at least by:
"as they await detailed guidance on how to take advantage of subsidies locked in the US Inflation Reduction Act"
(one of the reasons I feel we will end up with malinvestment and fraud in the renewables space)
This is a good point, I would add you want low cost electricity:
“There’s a massive capital cost in hydrogen, which is building the electrolyser,” Mr Norris said. “In order to pay back on that capital cost, capacity utilisation has to be very high. So you have to have a stable, consistent source of power that is producing hydrogen in the electrolyser.”
The subsidies are huge:
"The US and other governments have announced over $US280 billion ($435 billion) in subsidies to the low-carbon hydrogen sector, a quadrupling since 2021, according to BNEF"
Ian Simm, the chief executive of Impax Asset Management, is also cautious about hydrogen’s short-term prospects.
The theory is Hydrogen valuations got way ahead of themselves, there has been a pullback but even now the profits and technology utilisation are some way off. I would add that the spare electrical capacity that hydrogen electrolysers need in order to make the process profitable is quite a long way off. Demand is going to rise fast with electrification and supply overall might not keep up.
Impax are bullish in the longer term
“We’re very bullish about hydrogen with a 10-to-15 year horizon because it’s one of the key ways that we will be decarbonising industrial heat,”
The best part of the article is at the end which explains why the 'hedge fund boss' has taken this position in these companies (which I assume have just set themselves up to appeal to green investors and subsidies with an electrolyser powered by wind and solar). He believes their business model doesn't even work:
The “key obstacle” is “limited visibility of scalable and clear business models”, Simm said. That’s because most listed hydrogen companies focus on electrolysers, which are bogged down by “concerns about commoditization”, he said. The IRA “led to a brief run in hydrogen names but this has now reversed”, said Simm. Now, most hydrogen stocks are “materially below pre-IRA levels”.
Argonaut’s Mr Norris said he could not imagine hydrogen that was powered by renewables being a financially viable alternative.
“If you’ve got this big capex to build the electrolysers and they’re operating on wind and solar, you will find that capacity utilisation is equivalent to wind and solar capacity utilisation, which is at best 30 per cent to 40 per cent,” he said. “It will never be cost competitive if they’re powered by wind and solar. And what’s the point if they’re not powered by wind and solar?”
The trading day after the previous judgement you could easily buy BUR at 870p.
It rose to 1100p over the following month.
It looked like the price action was being driven by institutions gradually loading up. I expect this will continue.
I am hoping for a good set of results showing real progress towards the potential we have been promised. This should give a boost this week.
Cheap energy is important.
Prosperity is directly proportional to cost of energy. That is why the renewable push currently playing out will result in lower standards of living. I don't directly disagree with moving to renewables but the population are not being told the truth. If the population agree to a lower standard of living as the cost of moving to renewables [and 'saving the planet'] I don't have a problem with it but they are being lied to at the moment. You can see evidence of it by the way Germany turned instantly to coal when faced with some energy hardship, they are not expecting or willing to lower their standard of living.
Hydrogen will be an important energy source but as an intermediate step rather than the end product. (I did start to write a long post addressing my thoughts on BP and renewables but stopped. The essence was that BP might have choices on what to do with the energy that other bidders do not. This also applied to the green methane foray in the US where BP might have their sights on an eco-system rather than just the product. Clever cross-integration )
meoryou - you might be right and anti-renewables posters have slowly moved to other oilies like SHEL or XOM.
Regarding climate records, I don't believe any individual record any more, there is an agenda and statistics are easy to manipulate to extract 'records' given huge numbers of data points. Corrupt business and corrupt governments are extracting huge amounts of money from the crisis and making themselves rich, there is too much incentive for them not to be honest or play fair. These people are so arrogant they pat themselves on the back to congratulate themselves on their benevolent awesomeness. They use the scared climate activists as 'useful idiots' and hope the rest of the population will silently play along to fund their ventures.
I can't see how hydrogen flight has a future. It seems much more likely that synthetic SAF or ammonia or another liquid fuel will be used. Hydrogen is just not energy dense enough to make it practical and technology will move forwards fast.
At some point there might be abundant green hydrogen available but it will be used to turn into other substances and in industry.
meoryou
i can't answer the question 'should we be in or out of renewables?'. i find the issue more complicated but i will try to put down some of my thoughts.
i am not a buy and hold long term bp investor like some on here.
my investment strategy is a kind of 'anti-esg', if investors are willing to sell a company for non-financial reasons then that is a good buying opportunity for me. bp caught my eye because it managed to annoy everyone, it was cheap due to pension funds dumping o&g plus they managed to **** off the oil investors by having an energy transition plan. i felt the cost savings of cutting their exploration team and less profitable production would counteract the downside from added renewable investment. profits and the future would not be dented as much as expected.
the buybacks all the oilies have engaged in will disproportionately help companies the most undervalued by concentrating ownership and profits in an exponential way. its why i have always pushed for maximum buybacks since the 200p days.
the above is important because i am interested in the maximum share price in 5 years, not the maximum company value. if bp stays undervalued for longer due to the renewable investment, they might have bought back 20% extra shares over that time. in this case, as long as the renewable investment doesn't lose money, it has still been a positive on the share price at the 5 year point.
an odd affect could be that even though the share price is higher at the 5 year point, the market cap might be less overall; meaning any share buybacks in 2028 will still be more value concentrating due to the continued foray into renewables.
i hope this makes sense, the longer and more bp stays undervalued, the more the impact of the buybacks. if bp could buy back half their shares before anyone noticed (using free cashflow), we would all have doubled our ownership.
JSB - I am so glad it has gone very quiet. Hopefully in a couple of years when everything is sorted it (BP/Rosneft) can get up and running again.
Theaky - you point out something important, the reason I could get in at a good price was because of the renewables stance lowering the share price. So following that thinking; I feel they should announce they are going 100% O&G so I can sell out. Looney can then announce renewables again so the share price crashes and I can by back in at half the price. :D
The dividend is a whole separate issue but at a 4XXp, which is a clear undervaluation, I want them to buy back as many shares as possible with no dividend and increasing debt slightly. The maths makes sense to increase future total returns. Other people in different circumstances are correct to feel differently.
meoryou - I don't really want to make a call on the renewables BUT if XOM go 110% into O&G over the next 5 years, make loads of money and then buy BP out on a pe ratio of 5, they are clearly the winner.
Mark, so funny, I was going to say that yours was more eloquently put.
Then I saw your comment and noticed we posted at nearly the same time
Your input is always good and measured, it's good to finally be in the upswing we have seen evolve over the last 6 months. I saw my first article today saying the higher oil prices are potentially going to be ushering in the recession. The FED has tied it's own hands with their "we are not going to stop until inflation is tamed" rhetoric. Now they can't cut so we will end up with higher rates, higher inflation and a faster bust [towards deflation] next year.
Its trading again in US
$16.60
The 5 years is nowhere near long enough to judge if the plan was good or not. BP are moving to establish a key position in a brand new business area. He is doing that whilst competing with companies that are being thrown money by investors who are investing for the 'feel good factor' rather than just profit.
I would say it will take until at least 2030 to know if the investment is going in the right direction. O&G companies are used to multi-decade investment horizons (much more than the green investors) so they are well placed to play the long game. In the next few years with economic downturns and higher cost of capital the industry will be turned on it's head.
It's my belief that BL will be proved right if there is a shortage of energy* leading to a price squeeze, especially in the West. The people with access to the generation will be able to name their price. Integrating hydrogen with the wind power is vital but seems a long way away which is my main worry. I am not making a call on whether I am pro or against BL's plan.
There are loads of reasons why there might be a shortage of energy but one obvious one is the planned wind farms don't come on line when everyone expects. This will be down to
a) Finance: bidders are already pulling out because their finance costs were way out. On top of this other companies might not be able to get the capital they are expecting. Investors might pull back leading to projects getting delayed and moth-balled.
b) Grid connection: seems the backlog is huge and no one knows whether any of the planned projects will even get connected within the next 10-15 years.
c) technology: the companies already have problems where they haven't been able to deliver the products they promised and there will be a whole generation of projects in the pipeline that will need replanning (leading to lower generation capacity that affects the whole project viability??) or repricing
d) plus others, lack of investment elsewhere etc
I am sure a whole book could be written on this but the world will change a lot in the next 10 years.