BP Stock, Lagging Exxon, Blames Renewables, With Earnings Due

BP (BP) will report fourth-quarter financial results early Tuesday as it reportedly looks to shift away from renewable energy and return its primary focus to oil and gas production. BP stock edged lower Monday.

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Europe’s big energy names, including BP, have been under pressure for years to move quickly toward renewable energy. However, as BP stock and other Europe-based supermajors lag behind U.S. based giants Exxon Mobil (XOM) and Chevron (CVX), leadership has begun to push back, declaring that alternative energies profit shareholders less than fossil fuels.

On Feb. 1, The Wall Street Journal reported that BP CEO Bernard Looney plans to cut back elements of the oil giant’s push into renewable energy.

Disappointed in returns from the company’s renewable energy investments, Looney plans to pursue a pared-down alternative energy strategy, according to the Wall Street Journal. The BP CEO, to maximize profits, is also looking to trim future investments in solar and offshore wind, switching focus primarily to oil and gas operations.

This is an abrupt shift in messaging from the company that, two-decades ago attempted a rebrand from “British Petroleum” to “beyond petroleum.”

Current plans call for BP to cut oil and gas production by 40% by 2030, compared to 2019 levels. Looney has also said the goal is to increase alternative energy investments to around 50% of total capital spending by 2030. Analysts will be listening for any changes to those targets.

BP earnings Tuesday come as Exxon Mobil, Chevron and Shell (SHEL) combined for more than $132 billion in profit during 2022. The three energy giants also returned $78 billion to shareholders through buybacks and dividends throughout the year.

Analysts expect BP to report record 2022 profits and its highest annual revenue since before the Covid pandemic began.

BP Stock: Merger Speculation

On Jan. 25, Citigroup (C) analyst Alastair Syme provided a heads-up on potential industry consolidation. Exxon Mobil and Chevron could potentially look at buying Europe-based supermajors BP, Shell or TotalEnergies (TTE), he wrote.

Syme wrote that shares of BP, Shell and TotalEnergies have been run down by ESG investing and moves to transition away from oil and gas.

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“Markets are unlikely to close the gap by themselves: The cost of equity of European oils remains handcuffed by investor and political headwinds,” Syme wrote. “What is really needed is for the industry to arbitrage this value itself.”

The analyst added that if an acquisition takes place, the “prize” for Exxon Mobil or Chevron could be considerable.

“We look at the strategic imperative, financial accretion and political headwinds of either of the two U.S. IOCs (Exxon or Chevron) potentially looking to try and acquire one of their key European competitors (BP, Shell or TotalEnergies),” Syme wrote.

BP Earnings

Estimates: Analysts predict Q4 earnings growing 35% to $1.66 per share, according to FactSet. Wall Street forecasts revenue edging up 6% to $55.39 billion. Free cash flow is expected to retract 3% to $4 billion while analysts see capital spending increasing 32% to $4.78 billion in Q4.

For 2022, Wall Street forecasts EPS shooting up 131% to $8.84 and revenue growing 40% to $230.1 billion.

Earnings: Check early Tuesday.

BP stock dropped around 0.9% to 34.82 Monday during market trade. Shares have dropped about 1% since the beginning of 2023. BP stock has formed a flat base and is around 5% below an official 36.21 buy point, according to MarketSmith.

BP posted mixed third-quarter results, missing on revenue but topping earning views. The energy company reported EPS ballooning 161% to $2.59. Sales increased 45% to $55.01 billion. Over the past three quarters, BP has on average seen its quarterly earnings grow by 174%.

The U.K. oil and gas giant planned to return 60% of free cash flow to shareholders in 2022. The company planned $8.5 billion in share buybacks throughout 2022.

BP stock has lagged behind Exxon Mobil and Chevron in recent years. Since the end of 2019, BP stock has dropped around 9%. However, shares have rebounded about 57% from Oct. 2020 lows of 14.74. Exxon Mobil stock has powered up 258% since Oct. 2020.

BP stock ranks 3rd in IBD’s Oil & Gas-Integrated industry group. Shares have a 90 Composite Rating out of 99. The stock has a 75 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share-price movement. The EPS rating is 79.

BP Stock: The Oil Market

U.S. crude oil futures advanced around 1.3% to $74.32 per barrel Monday. On Sunday, The European Union’s price caps and ban on seaborne imports of Russian oil products went into effect.

In late January, U.S. crude had crept back up to around $80 per barrel, regaining support above its 50-day moving average line for the first time since mid-November. However, last week, U.S. crude oil inventories data pushed prices back down below $76 per barrel.

The main question investors and analysts are looking at is how much will China oil demand pick up with the Lunar New Year over and the Covid wave seemingly fading?

Over the weekend, the International Energy Agency’s (IEA) Executive Director Fatih Birol said China’s economy could be poised for a stronger-than-anticipated rebound that will boost demand for crude, Bloomberg reported.

The IEA has already produced an optimistic oil demand forecast estimating that China will boost 2023 global oil demand to record highs. Estimates from the Paris, France-based IEA forecast China’s reopening will drive global oil demand to a record high 101.7 million barrels per day (bpd) in 2023, up by 1.9 million bpd from 2022.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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