BP's Shift Back to Oil and Gas
BP is shifting its focus back to its core competency—exploring for oil and gas. The company had previously announced plans to cut hydrocarbon production by 40% by 2030, emphasizing clean energy investments. However, it has now shifted gears, particularly highlighting its U.S.-oriented operations.
Undervalued U.S. Operations
BP, one of the largest oil producers in the Gulf of Mexico, holds a strong position in U.S. regions like Permian, Haynesville, and Eagle Ford. The market, however, seems slow to recognize this shift. U.S.-listed shares trade around $34, hitting a 52-week low. With a price-to-earnings ratio of just seven times projected 2024 earnings, BP stands out as a cheap investment among European energy companies.
Attractive Dividend Yield and Share Repurchase Plan
BP offers a 5% dividend yield, the highest among oil majors. The company prioritizes dividend growth, aiming for a 4% annual increase even if benchmark crude prices fall. Additionally, BP has an active share-repurchase plan, having repurchased about $8 billion of stock in 2023 and expected to repurchase $4 billion to $6 billion in 2024.
Leadership Change and Investor-Friendly Approach
Murray Auchincloss, BP's new CEO, is seen as shareholder-friendly, indicating a commitment to traditional energy businesses. Auchincloss plans to double production to 650,000 barrels a day by 2030, potentially quadrupling annual free cash flow to $4 billion.
Robust Earnings Outlook and Resource Base
BP targets $55 billion of earnings before 2030, up from an estimated $43 billion in 2023. The company plans to maintain a transition business segment, contributing about $12 billion in earnings. With a currently recoverable resource base of 18 billion barrels of oil equivalent, BP has significant reserves.
Challenges and Opportunities
Despite challenges in its wind business, investors see potential in BP's mobility and convenience division. Focus on the higher-return parts of the low-carbon value chain is crucial for success. There's also speculation about potential activist interest, given BP's estimated sum-of-the-parts value, making it a potential acquisition candidate.
Conclusion: A Low-Risk Play on the Future of Oil
BP's strategic shift back to oil and gas, coupled with its undervalued stock, attractive dividend yield, and robust earnings outlook, positions it as a low-risk investment in the oil sector. As the company navigates its pivot and addresses investor concerns, it presents an opportunity for those seeking exposure to the future of oil and beyond.
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