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Crude oil and natural gas prices have waned and will likely remain weak for the foreseeable future.
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This company can still perform well in a low-price environment, however.
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Meanwhile, it’s also evolving for the eventual inevitable end of fossil fuels and the transition to renewables.
It’s been a tough three years for energy stocks. After surging during the COVID-19 pandemic, prices of crude oil and natural gas have both fallen since the middle of 2022, dragging many of the sector’s stocks lower.
There’s no end in sight either. Indeed, the U.S. Energy Information Administration predicts crude oil prices will sink to an average of about $55 per barrel this year and next, down from 2025’s average of $69, further threatening the business’s profit margins.
If you’re an income-minded investor who can look a little further down the road, though, oil giant BP (NYSE: BP) may be a great “forever” name to step into while its 15% pullback from its early 2023 peak has pumped its forward-looking dividend yield up to a healthy 5.6%.
Rumors of the oil and gas business’s death have been greatly exaggerated. The so-called “peak oil” pivot (where daily consumption of crude oil begins to permanently dwindle)? It’s been pushed back to 2050, according to the International Energy Agency, jibing with outlooks from OPEC as well as industry powerhouse ExxonMobil. And even then, we’ll still need plenty of oil for the next several decades. BP’s got the assets it needs to deliver for this time frame.
That being said, perhaps the chief reason income investors might want to jump into this energy name right now is that it’s already managing the inevitable — even if lengthy — shift away from fossil fuels and toward the aforementioned renewables.
Case(s) in point: BP’s partnership with JERA Nex is designed to develop offshore wind farms. It can currently generate on the order of 1 gigawatt, but plans for eventual power production of 13 gigawatts. That’s enough electricity for roughly 10 million homes, or more relevantly now, several data centers. Meanwhile, Lightsource BP is working on generating and storing solar power for use by institutional clients, including utility companies.
It’s still a relatively small business for BP, and one that hasn’t yet paid off. In fact, the company recently announced it would be booking a noncash impairment of between $4 billion and $5 billion for its low-carbon business, reminding investors just how challenging the transition from fossil fuels to renewables can be.
