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Crude oil and natural gas prices have fallen and are likely to remain weak for the foreseeable future.
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However, the company can still perform well in a low-price environment.
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At the same time, it is also evolving towards the eventual inevitable end of fossil fuels and the transition to renewable energy.
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10 stocks we like better than BP ›
It’s been a rough three years for energy stocks. Crude oil and natural gas prices have both fallen since mid-2022 after surging during the COVID-19 pandemic, dragging many stocks in the sector lower.
There is no end in sight either. In fact, the U.S. Energy Information Administration predicts that crude oil prices will fall to an average of about $55 per barrel this year and next, down from an average of $69 per barrel in 2025, further threatening the business’s profit margins.
However, if you’re an income-focused investor looking further afield, Big Oil blood pressure (NYSE: BP) Could be a great “forever” name, and its 15% pullback from its early 2023 peak has lifted its forward dividend yield to a healthy 5.6%.
Rumors about the demise of the oil and gas business are greatly exaggerated. The so-called “peak oil” pivot point (where daily crude oil consumption begins to decrease permanently)? That target has been pushed back to 2050, according to the International Energy Agency, in line with the outlook from OPEC and industry giants Exxon Mobil. Even so, we’ll still need a lot of oil in the coming decades. BP has the assets needed to deliver within this timeframe.
That being said, perhaps the main reason income investors want to jump into this energy name right now is that it’s already managing the inevitable — if lengthy — shift away from fossil fuels and toward the aforementioned renewables.
Typical case: BP’s cooperation with JERA Nex aims to develop offshore wind farms. It currently has a power generation capacity of approximately 1 GW, but plans to eventually generate 13 GW. That’s enough to power around 10 million homes, or more relevantly these days, a few data centers. Meanwhile, Lightsource BP is working to generate and store solar energy for use by institutional customers, including utility companies.
It’s still a relatively small business for BP, and it’s yet to pay off. In fact, the company recently announced it would take a $4 billion to $5 billion non-cash impairment charge on its low-carbon business, reminding investors how challenging the transition from fossil fuels to renewable energy is.
