With the price of a barrel hovering around $80, the potential value of our oil assets is coming under renewed scrutiny.
Researchers at Aberdeen University have upped their estimates of the commercially viable reserves under the North Sea by 4bn barrels, based on an estimated average market price of $60 per barrel. They currently reckon we could see around 15bn barrels pumped from the area between now and 2050.
At $60 that would be a total market value of $900bn, and if oil could maintain the $80 level we’d be looking at $1,200bn. Wouldn’t you rather have a share of that to keep you comfortable in your old age than try to make do on the State Pension of a maximum of £164.35 per week?
Spread the risk
When it comes to investing for yourself, I’d never recommend putting all your cash into just one share. No, I really do think you need a bit of diversity across a number of sectors. But when I think about a potential investment, it really does help to ask myself “how would I feel if this was the only stock I could hold for the next 10 years?“
There are very few I’d feel comfortable about, but I do see our top oil companies as possibly the safest there are for the long term. BP (LSE: BP), for example, would keep me awake at night a lot less than if I had all my cash in the banking sector, or in small-cap growth stocks.
BP has been through the oil price crisis along with the rest, and prior to that it suffered the costs of the Gulf of Mexico disaster. But, with the exception of 2010, the year of the actual Deepwater Horizon oil spill, BP kept on paying decent dividends.
And during the subsequent oil price slump, those dividends continued to provide annual yields of around 5%-6% — even in the years when the payouts were not covered by earnings, BP was disposing of non-core assets and was easily able to keep to its plan for steady cash rewards for shareholders.
With oil back on the up, the City is predicting yields of 5.6%, with increasing cover. And I don’t think it will be too long before we see the payments starting to rise once again.
But even if dividend returns have held up, the share price must surely have slumped, mustn’t it? Actually, no. Over the past decade, BP shares have remained pretty much flat.
And once you add 10 years of dividends, the overall return comes to something like 50%. Now that’s a little disappointing for a decade-long stock market investment in general. But it’s still a good bit better than cash in a savings account would have got you.
And if that’s the worst that happened during the worst decade for BP for as long as I can remember, I reckon it makes it a great long-term investment. Oh, and since the birth of the FTSE 100 back in the 1980s, BP shares have beaten the index hands down.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.