European energy giants have significantly underperformed their American peers by far. While the BP share price has risen by 33% in 2022, ExxonMobil, Chevron, and Occidental have risen by 76%, 52%, and 120%, respectively. Shell and TotalEnergies have also risen by less than 35% this year.
Wokeness is ruining BP
BP share price has underperformed despite robust business performance because of its increased investments in clean energy. In October, the company doubled down on these investments by spending $3.8 billion buying Archaea Energy, a company that produces Renewable Natural Gas (RNG).
In June, BP spent millions buying a 40% stake in a large green hydrogen producer known as Asian Renewable Energy Hub. By February this year, the company had invested $3.8 billion on climate energy.
While these investments provide nice PR to the company, the reality is that they provide almost nothing in terms of cash returns to shareholders. I believe that the company should instead be spending money boosting its shareholder returns. This view was shared by an analyst who said:
“Investors are saying, ‘You’re good at producing oil, not building wind farms. Investors are very clear about what Exxon and Chevron do. It’s not so clear to them anymore what BP and Shell want to do.”
This explains why American companies like Exxon and Chevron have outperformed BP, Shell, and TotalEnergies for years. Instead of buying a renewable energy company, ExxonMobil announced that it will repurchase stock worth $50 billion starting from next year. It has already repurchased shares worth $30 billion in the past few years.
European large investors hostile
BP share price has also lagged because European investors seem more attracted to ESG than their American peers. According to Franklin Templeton, European shareholders tend to be less friendly to oil and gas companies.
For example, this week, the Norwegian oil fund, which derived its cash from oil, said that it would vote against companies without net-zero targets. Governments are also hostile, with most of them implementing windfall taxes.
Therefore, recently, we have seen more American investors start pumping money to European oil supermajors.
BP has an attractive dividend yield of 4.25% but it can do more. For one, its payout ratio of 2.75% is significantly lower than Exxon’s 27%.
BP share price forecast
BP stock price has pulled back in the past few days as oil prices have dived. It has moved below the 50-day moving average and is nearing the lower side of the ascending channel. Oscillators like the Relative Strength Index (RSI) have tilted lower. Therefore, the stock will likely remain under pressure for a while as the oil supercycle ends.