Over the past 12 months, shares in Royal Dutch Shell (LSE: RDSB) have outperformed the BP (LSE: BP) share price. Shell has returned nearly 8%, excluding dividends paid to investors, while shares in BP have only added 4%.
However, past performance should never be used as a guide to future potential. So, which company would I buy for the next five to 10 years?
BP share price outlook
I’m pretty optimistic about the outlook for the BP share price. It’s clear to me the world is steadily moving away from oil and gas towards more renewable energy sources. In my opinion, companies need to get with the trend, or they risk being left behind.
BP is doing just that. The company plans to invest tens of billions of dollars over the next few years to increase its renewable energy generation substantially. I think this is the right decision. It could futureproof the business and help protect growth for years to come.
Of course, there’s a risk that the company may spend much of this money for less return than hoped for. If oil and gas remain primary power sources for the world for longer than expected, management may regret spending so heavily on renewable projects. I feel that’s a considerable risk hanging over the BP share price right now.
The challenge for Shell
Shell’s renewable energy ambitions are nowhere near as large as those of BP. The company aims to double the electricity it sells, delivering the equivalent of more than 50m households with renewable electricity by 2030. Meanwhile, BP wants to increase its output more than 10-fold to 50GW by 2030.
Further, BP has laid out plans to be a net-zero business by 2050. Shell had plans to hit the same target but was recently told by a Dutch court that its agenda didn’t go far enough. The company’s strategy was attacked for being “not concrete and is full of conditions.“
Still, while Shell’s plans might not be as ambitious as BP’s, the company could benefit if oil and gas remain a crucial component of the global energy mix. The BP share price could underperform Shell’s if that turns out to be the case.
The company also owns one of Europe’s most extensive energy trading operations, which gives it a substantial competitive advantage over competitors and unrivalled market access. These qualities could enable the business to navigate the headwinds facing the sector better than its peer.
Which company to buy?
Considering all of the above, if I had to choose between Shell and BP, I’d pick the latter. BP has been producing renewable energy for several decades, and I think it has more experience in the sector. I’m also encouraged by the company’s ambitious growth plans over the next few years.
While I’m aware that a strategy of diving headfirst into renewable energy comes with its own challenges, I think the potential for reward more than outweighs these risks. That’s why I’d buy BP today.
