Over the decades, the BP (LSE: BP.) share price never really looked like one of the highly volatile ones. That’s until the pandemic crash came along, and BP chose that time to launch its Net-Zero project.
The share price plunged to the lowest it’s been this century.
But following a US-led refocus on oil, BP’s softened its low-emissions targets. And the share price has come back a fair way. Is it back to being the no-brainer cash cow that so many of us saw it as for so long?
Bullish outlook
City analysts are upbeat about BP share price prospects. I see targets ranging from a low of 514p to a high of 698p. That suggests gains of anywhere between around 22% and 67%… and not many FTSE 100 stocks have a range of price expectations as good as that.
We see earnings-per-share (EPS) forecasts that could drop the price-to-earnings (P/E) ratio to a low nine by 2027. And EPS would be enough to cover the predicted 2027 dividend 1.7 times. There’s currently a forecast dividend yield of 5.8% for the current year.
What do we need for BP to prosper as a long-term investment from here on out? I can see a couple of key things. First, I reckon we need demand to keep on going for a few more decades.
New hydrocarbon technology
The world has to get back to developing and using lower-emission energy sources some day. But some of that could still come from hydrocarbons. Fuel cells, splitting crude oil into hydrogen and carbon compounds… technologies do exist. Doing it without producing carbon dioxide is a challenge, but surely easier than waiting until it’s already in the atmosphere.
Higher long-term oil prices would also help. I’m really not sure BP would be able to meet profit forecasts for the next few years if the stuff stays around $65.
But there’s a key bottom line for me. The energy density of hydrocarbons, and the large amounts still yet to be tapped, mean there’s great motivation for finding ways to keep its use going for as long as possible. It might though, take more political will than exists at the moment.
Not holding back
Meanwhile, BP’s going full ahead with its traditional upstream and downstream oil and gas activities. At H1 time this year, CEO Murray Auchincloss spoke of growth plans across the business. He pointed out that BP had “brought five new oil and gas major projects onstream, sanctioned four more and made ten exploration discoveries.”
The growing energy demand from artificial intelligence (AI) data centres looks set to boost energy demand dramatically. Plans to drive increasing amounts of that by nuclear power are progressing, but seem likely to still take quite some time. Natural gas demand’s growing as one result.
The main long-term risk remains the eventual ending of burning hydrocarbons as a way to power the planet. But I think those who see that day as still a long way off could profit nicely if they consider buying BP shares now.
