Tag: BP

BP CEO Departs

BP has announced that CEO Bernard Looney has notified the Company that he has resigned as Chief Executive Officer with immediate effect.

Why you may ask? It seems that he has had some personal relationships with colleagues in the past, not all of which he had disclosed to the company. No breach of the Company’s Code of Conduct was found after an investigation but more allegations have been received.

As an investor in BP, could I care whether Looney had some personal relationships? I do not. I am only concerned whether he has been doing a good job or not. So far as I can tell he has been. BP needs to manage a transition from being a big producer of oil and gas to a more mixed and lower carbon energy provider. This it seemed to have sensible plans to do.

This looks like a political witch-hunt of some kind. It’s not the first time that BP has lost its CEO due to inappropriate relationships. See the case of John Browne (now Lord Browne) in 2007 and his homosexual relationships. See Wikipedia for details.

The Telegraph had some amusing comments on the latest news. It said: “Mr Looney’s personal life was thrown into the spotlight last year when his ex-wife Jacqueline Hurst, a life coach, wrote about her marriage difficulties in her self-published book, How To Do You: the Life Changing Art of Mastering Your Thoughts and Taking Control of Your Life. In a chapter on anxiety which is understood to reference her marriage to Mr Looney, Ms Hurst claimed that her husband only married her to get ahead at BP. Ms Hurst, who has been married twice, wrote: When my husband ended our marriage suddenly and without warning via a WhatsApp message, I was naturally devastated.”

It seems life at the top of this FTSE-100 company is like any good soap opera.

Roger Lawson (Twitter https://twitter.com/RogerWLawson  )

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Should I Invest in Oil and/or Buy a New Car?

The stock market is quiescent and it is time to ponder questions such as should I buy more BP shares and should I buy an electric or hybrid car? There is an article in the FT today on the rejection of resolutions focussed on climate change at the ExxonMobil and Chevron annual meetings. It said: “shareholders solidly rejected climate change proposals at the US oil majors’ annual meetings on Wednesday, scaling back support from last year and splitting with results at peers in Europe where resolutions related to global warming have won stronger support. Only 11 per cent of Exxon shareholders supported a petition calling for the company to set emissions reduction targets that would be consistent with the goals of the 2015 Paris climate agreement. A similar proposal at Chevron received less than 10 per cent support”. See FT article here: https://www.ft.com/content/7faccadc-beef-4b10-be53-ae7aceaeafce

Resolutions on this subject at the BP and Shell AGMs were similarly defeated even though many institutional holders like to promote their green credentials.

Individual shareholders need to make up their own minds on how to vote on whether to put companies like BP and Shell out of business by stopping their oil development activities. Both BP and Shell argue for a transition to renewable energy at a pace acceptable to their customers and which does not impose unreasonable short-term costs and I agree with them. The transition to renewable energy for many purposes may make sense but for transportation carbon fuels have a very high energy intensity and the infrastructure to support electric vehicles means a high loss in the transmission system.

I have a pressing personal decision to make on this issue. My diesel-powered Jaguar XF is almost ten years old now and I like to buy a new car when they have done more than 60,000 miles as they get more unreliable and expensive to maintain after that. I don’t do many miles now so a somewhat smaller car might make some sense. But should it be an electric vehicle, a hybrid or a petrol/diesel one?

I think a hybrid is the best bet and have booked a test drive of a Toyota Corolla. They are self-charging hybrids but can only run a short distance on battery power so I am betting that petrol will be readily available for at least the next ten years.

I am surprised that Jaguar are still selling XF models but they do now have a petrol option and a “sportbrake” version which probably shows how well liked the car is but I fear that diesel will be discouraged by regulation soon.

They do sell all-electric models now but they are expensive and are bulky SUV style cars when I prefer smaller vehicles. Note that the environmental benefits of electric cars over petrol ones are quite marginal if you take the all-in lifetime environmental impact costs into account and the latest scare is that the heavier weight of electric vehicles is causing damage to our roads – thus explaining why there are so many potholes in our roads of late. The weight of current electric batteries is becoming a major problem while the production and recycling of batteries is a negative aspect not yet confronted.

Electric cars are cheaper than they used to be but they either have limited range or are expensive (£43,000 to £58,000 for a Tesla Model 3 for example, or over £70,000 for a Jaguar I-Pace).

Readers of this article can suggest alternatives for me to look at. Use the comment box below.

I could of course hold on to my current vehicle for another few years in the hope that Sadiq Khan changes his mind on the ULEZ expansion (my Jaguar XF is not compliant) or is not elected again next May. There are several strong contenders lining up to take him on. But I do so few miles within the ULEZ area (current and future) that it does not bother me much what the Mayor decides to do. Whatever he decides he is bound to be wrong based on his past decision record.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Segro Results, BP Acquisition and Boltholes in Portugal

Segro (SGRO), a property company with large warehouses, issued their final results this morning. Adjusted profit was up 8.4% but IFRS earnings per share were down substantially. This curate’s egg of results arose because the assets were revalued down by 11% to reflect the general fall in commercial property valuations particularly in the second half of the year, while rental income was up by 18.9%.  Rental income rose due to strong like-for-like rental growth (a 23% average uplift on rent reviews and renewals) and development completions. The full year dividend is increased by 8.2%.

Comment: These results would look really good if the fall in the value of their properties was ignored. They have no control over the latter of course which are affected by macroeconomic conditions, the cyclical nature of property investments and investors’ general view of commercial property which is very negative as other assets such as offices and retail have declined while interest rates have risen. The market has responded positively to these results after an initial hiccup. For the longer-term it’s starting to look very positive.

Energy company BP (BP.) yesterday announced they were acquiring TravelCenters of America for $1.3 billion. TravelCenters operate a network of EV charging points in the USA.

BP is paying about six times Travelcenters EBITDA and their share price rose by 71% on the news. BP is also planning to invest $1 billion in electric vehicle charging across the USA by 2030. This is part of BP’s five “transition growth engines”.

As a shareholder in BP, this looks a sensible investment and is a rebuttable of those who say big oil companies are not doing enough to move away from oil.

Tesla is also expanding its charging network and making it accessible to other vehicle makes. The electric vehicle revolution is clearly accelerating in the USA partly due to US government encouragement.

The bad news today for wealthy investors was that according to the FT Portugal is scrapping its golden visa scheme that gives non-Europeans the right to claim residency in return for investment. With Portugal having low tax rates and a good climate this was a good location for the moderately rich (it only required property investment of Euro500,000).

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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BP Results + BEIS Restructure

BP (BP.) produced some great financial results yesterday and the share price rose 8% on the day and is still rising. Other oil companies rose in unison. What I particularly liked as a holder was the improvement in Return on Capital which is forecast to grow to 18% in 2025 and 2030. This is after many years of quite mundane returns when I judge such a metric to be a key factor in any investment decision.

With increasing share buy-backs and dividend increases you can see why shareholders are happy. Their view might also have been affected by the following comment from the company CEO: “It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what’s known as the energy trilemma. To tackle that, action is needed to accelerate the transition. And – at the same time – action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today”.

He is in effect saying that BP will continue to invest in oil/gas production while also investing in “transition growth engines” which includes “bioenergy, convenience and EV charging, hydrogen and renewables and power”. Production of oil/gas will be around 25% lower than BP’s production in 2019, excluding production from Rosneft, compared to the company’s previous expectation of a reduction of around 40%. BP correspondingly now aims for a fall of 20% to 30% in emissions from the carbon in its oil and gas production in 2030 compared to a 2019 baseline, lower than the previous aim of 35-40%.

It is good to see that reality has crept into their plans and forecasts. But the company’s results are clearly very dependent on the price of energy whose cost has shot up sharply because of the war in Ukraine, There is a worldwide energy shortage and investors should keep a close eye on trends in that market if they hold companies such as BP and Shell.

There was an amusing post on Twitter by Philip O’Sullivan pointing out that the Annual Report of Shell in 1944 was all of 8 pages long – see first page above. Last year it was 359 pages!

That would be a good example for Shell and other companies to follow when annual reports are now way to long and voluminous in most cases. This is partly down to increased regulation and expanded accounting standards driven by increases in bureaucracy emanating from the Government BEIS Department  (“The Department for Business, Energy and Industrial Strategy”). For many years this used to be called the Department of Trade and Industry (the DTI) before politicians decided it was a good idea to rebrand it.

Now the Government has decided to split it up into three new Departments to be called “the Department for Science, Innovation and Technology, the Department for Energy Security and Net Zero, and the Department for Business and Trade”. What the benefit of this restructuring will be is not at all obvious and the name “Department for Energy Security and Net Zero” is a particular oxymoron as aiming for Net Zero is not going to improve energy security.

The downside is likely to be another year of musical chairs for civil servants in these departments when one of the issues is lack of continuity of expertise in specialist areas of government such as company law and stock market regulation.

Shuffling responsibilities does not help.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Adjustments, Adjustments and Adjustments at Abcam, Oil+Gas Companies and FCA Decision on Woodford/Link.

Abcam (ABC) published their interim results yesterday (on 12/9/2022). I have commented negatively on this company and its Chairman before despite still holding the shares.

The same game continues – revenue up but reported operating profit down and cash flow from operations down. But adjusted operating profit up. What are the adjustments? These include:

£2.6 million relating to the Oracle Cloud ERP project (H1 2021: £2.0m); £6.0 million from acquisition, integration, and reorganisation charges (H1 2021: £3.5m); £9.0 million relating to the amortisation of acquired intangibles (H1 2021: £4.0m); and £13.0 million in charges for share-based payments (H1 2021: £6.7m).

The ERP project costs continue and I very much doubt that they are getting a justifiable return on the investment in that project now or in the future. Together with the acquisition, integration and reorganisation charges it just looks like a whole ragbag of costs are being capitalised when they should not be.

The company also announced there would be a webinar for investors on the day and a recording of it available on their web site later. Neither was available on their web site on the day or at the time of writing this. More simple incompetence!

The share price of Abcam has been rising of late which just tells you that most investors are unable to look through the headline figures and the sophistry of the directors.

As a change from investing in technology companies such as Abcam who of late are massaging their accounts, and not paying dividends, my focus has turned to commodity businesses. I have even been buying oil/gas companies such as Shell, BP, Woodside Energy and Serica Energy plus several alternative energy companies. There is clearly going to be a shortage of energy worldwide for some time while institutional investors have been reducing their holdings in some oil/gas companies simply from concerns about the negative environmental impacts and long-term prospects as Governments aim to reduce carbon emissions. But in reality the progress on carbon reduction is slow and I feel oil/gas companies will be making good profits for a least a few more years. Energy has to come from somewhere and these companies should do well and can adapt to the new environment easily. In the meantime, they will be paying high dividends and/or doing large share buy-backs.

I am generally not a big holder of commodity businesses as their profits can be volatile and unpredictable as they depend on commodity prices. These can be moved by Government actions or political disruptions such as the war in Ukraine. Will the war end soon? I have no idea. But even if it does there is likely to be a new “cold war” if Putin or other hard line Russian leaders remain in charge. I never try to predict geopolitical changes but just follow the trends in the stock market.  

The partially good news for Woodford investors is that the FCA has formed a provisional view that Link Fund Solutions may be liable for £306 million in redress payments to investors for misconduct rather than losses caused by fluctuations in the market value or price of investments. In other words, it may be nowhere near covering investors losses in the Woodford Equity Income Fund. They have announced this simply because Link is currently subject to a takeover bid which they have approved subject to a condition to commit to make funds available to meet any shortfall in the amount available to cover any redress payments. I suspect this is going to make gaining a full recover for investors somewhat problematic.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Frying in Hell and Investing in Oil Companies

Last night and this morning, the national media were dominated by the news from the Intergovernmental Panel on Climate Change that we are all going to fry in a rapidly rising world temperature unless we change our ways. CO2 emissions continue to rise and even to limit temperature rises to 1.5 degrees Celsius requires unprecedented changes to many aspects of our lives.

The suggested solutions are changes to transport to cut emissions, e.g. electric cars, eating less meat, growing more trees, ceasing the use of gas for heating and other major revolutions in the way we live.

So one question for investors is should we divest ourselves of holdings in fossil fuel companies? Not many UK investors hold shares in coal mines – the best time to invest in coal was in the 18th and 19th century. That industry is undoubtedly in decline in many countries although some like China have seen increased coal production where it is still financially competitive. See https://ourworldindata.org/fossil-fuels for some data on trends.

But I thought I would take a look at a couple of the world’s largest oil companies – BP and Shell. How have they been doing of late? Looking at the last 5 years financial figures and taking an average of the Return on Assets reported by Stockopedia, the figures are 2.86% per annum for Shell and 0.06% per annum for BP – the latter being hit by the Gulf oil spill disaster of course. They bounce up and down over the years based on the price of oil, but are these figures ones that would encourage you to purchase shares in these businesses? The answer is surely no.

The figures are the result of oil exploration and production becoming more difficult, and in the case of BP, having to take more risks to exploit difficult to access reserves. It does not seem to me that those trends are likely to change.

Even if politicians ignore the call to cut CO2 emissions, which I suspect they will ultimately not do, for investors there are surely better propositions to look at. Even electric cars look more attractive as investments although buying shares in Tesla might be a tricky one, even if buying their cars might be justified. Personally, I prefer to invest in companies that generate a return on capital of more than 15% per annum, so I won’t be investing in oil companies anytime soon.

But one aspect that totally baffles me about the global warming scare is why the scientists and politicians ignore the underlying issue. Namely that there are too many people emitting too much air pollution. The level of CO2 and other atmospheric emissions are directly related to the number of people in this world. More people generate more demand for travel, consume more food, require more heating and lighting and require more infrastructure to house them (construction generates a lot of emissions alone). But there are no calls to cut population or even reduce its growth. Why does everyone shy away from this simple solution to the problem?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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