The BP (LSE:BP.) share price is trading at 479p, up 1.86% this year after a volatile few weeks.
It took a minor hit on 1 February following a site-wide electrical failure at one of its largest US refineries, but that was short-lived. Soon after, on 6 February, the price hit new highs with the release of its full-year 2023 earnings report.
Which is odd, considering…
Missed expectations
Despite falling short of some expectations, the earnings report seems to have had a positive reception, overall. At £11bn, annual profits are down from last year yet still the second-highest in a decade.
But analysts expected more.
Both revenue and earnings per share (EPS) were lower than estimated, by 7.7% and 9.1%, respectively. Notably, BP’s oil production decreased by 5.3% in 2023 which undoubtedly contributed to the reduction.
BP competitor Shell has also seen a reduction in profits, down by £9.29bn compared to 2022.
Remember those devastatingly high war-induced oil prices in 2022? Well, they seem to be levelling out. Sure, Russia hasn’t withdrawn its invasion of Ukraine but at least oil supply fears seem to have subsided – for now.
Despite the lower-than-expected results, analysts haven’t drastically altered their forecasts for BP in 2024. Twelve-month price targets remain at around 613p, representing potential improvement of 27%. Revenue and EPS are now anticipated to be slightly lower than previously thought, but nothing major.
The green oil company
BP remains one of the only companies in the oil and gas sector with a solid pledge to reduce emissions and transition to green energy options. However, while the company initially aimed to cut oil and gas output by 40% by 2030, this target has already been reduced to 25%.
To pick up the slack, BP has begun diversifying into biofuels, charging, renewables, and hydrogen.
Some investors feel this could negatively affect its future earnings but new boss, Murray Auchincloss, is adamant to stick to the plan.
It’s an admirable venture for a fossil fuel energy company to pursue. Particularly at a time when renewable energy is being heavily scrutinised. Many feel it’s simply swapping one problem for another. Renewable energy products often require the mining of rare minerals, using fossil fuels to mine them, and causing indirect environmental damage.
Others have pointed out that by cutting back on gas and oil production, other providers will simply ramp up theirs – negating any positive climate impact.
At the end of the day, the green agenda isn’t going anywhere. If BP’s efforts curry favour with the right investors, it could find profit in the renewables sector. But it’ll need to walk a fine line between staying afloat and not diluting promises to a point where it loses credibility.
My verdict
I don’t think the BP share price is going to make any significant gains in the near future. This green energy gamble will need to gain some real traction before I’m convinced.
However, I do like the 4.8% dividend yield that BP pays. The yield has been climbing consistently over the past few years and payments are fairly consistent, so – if nothing else — BP could be a decent passive income earner.
For now, I’ll stick to Shell. But I do hope BP manages to pull off a successful transition to a more renewable business model.
