For decades, major energy firm BP (NYSE:BP) was known as a relatively stable company to invest in. Granted, the name did hit troubled waters with its 2010 oil spill in the Gulf of Mexico, but BP stock was able to recover and go back to business as usual.
Then, soon after came the petroleum price rout. Now, it seems that the days of West Texas Intermediate (WTI) crude oil selling at $100-plus per barrel might be gone forever.
BP stock investors probably never imagined they’d witness oil futures contracts trading at -$37. Yet, somehow, that happened in April. Needless to say, this year has been incredibly unusual.
But while other energy companies stood firm on fossil fuels during these challenging times, BP has famously shifted in a completely different direction. At first, I hesitated to view this as bullish. However, now the company’s new commitment to a growing market has opened my eyes to the possibilities.
A Closer Look at BP Stock
The picture has changed somewhat for BP in recent weeks. In early November, traders were able to purchase BP shares at around $16, a price that hasn’t been seen since 1994.
As it turns out, scooping up the stock at that price would have been a well-timed move. Now, the BP bulls have provided some rocket power, sending shares up to the $22 area.
BP stock closed at $22.27 on Dec. 4, so perhaps the bulls can maintain this level and even reclaim $25 and $30 at some point. Just be aware that they made a run for $30 in June but failed that time.
Regardless of that, though, income-focused investors should be glad to know that BP is still a pretty good dividend payer. Currently, the stock offers a forward annual dividend yield of 5.66% — quite respectable.
A Daring Move
BP certainly isn’t the only energy company to make a move from fossil fuels into cleaner energy sources.
However, it’s not every day that we see a company as big as BP preparing for such a massive shift away from its decades-long, incredibly profitable core business.
If you can believe it, over the next 10 years BP intends to reduce its oil production by 40%. It’s a bold plan, to say the least. I suspect that some long-time owners of BP stock weren’t thrilled that the energy giant plans to radically alter its business model.
On top of that, CEO Bernard Looney announced a plan involving investments of “$5 billion per year in renewables.” This undoubtedly provided fodder for the skeptics, who will question whether this costly plan will pay off for the company and its shareholders.
Preparing for a Hydrogen-Fueled Future
When we delve into BP’s vision for the future of energy and the company’s recent actions, BP’s seemingly drastic refocusing makes more sense, though.
As BP sees it, the global market for crude oil may have permanently peaked in 2019. Furthermore, BP models a “decline in demand for oil over the next 30 years.”
And these aren’t just empty forecasts — BP is putting its money where its mouth is. As evidence of this, the firm recently revealed that it’s embarking on a green hydrogen project with Ørsted (OTCMKTS:DNNGY), a Danish energy company.
With help from Ørsted’s wind farm in the North Sea, the company hopes to produce hydrogen from water at one of its refineries in Germany. Looney commented, “This collaboration has the potential to play a meaningful role in the development of a hydrogen economy, in Germany and beyond.”
In time, this could turn out to be quite lucrative for BP stock. Analysts from Goldman Sachs project that the addressable green hydrogen market could be worth the equivalent of $11.7 trillion by 2050. Meanwhile, Bank of America strategists “echoed those bullish sentiments, predicting clean hydrogen could generate $2.5 trillion of direct revenue” in that same time frame.
Bottom Line
So, have I flipped bullish on BP stock? I certainly have, in light of changing circumstances and BP’s evident commitment to the potentially hyper-growth clean hydrogen market.
Now, don’t get me wrong — I could certainly change my opinion on this name in the future. But for the time being, I’m seeing long-term green for both the company and its shareholders.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content -and crossed the occasional line -on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
