The year 2020 was a landmark year when it comes to investment in low-carbon energy transition. During the year, total renewable energy investment exceeded $500 billion for the first time. The record investment came amidst the headwinds created by the novel coronavirus pandemic.
Clearly, renewable energy investments are gaining traction. Oil and gas majors have also pursued some big long-term transformation targets. Oil stocks are interesting in the current scenario where oil is trending higher and inflation accelerates. The big transformation towards renewable energy sources is another reason to consider oil stocks.
This column will talk about four oil stocks that have committed to net carbon neutrality by 2050. In the next decade, these oil and gas majors have significant investments lined up for solar and wind energy assets.
I believe that these oil stocks are worth considering to benefit from the current industry tailwind. Additionally, renewable energy investments make these oil stocks attractive from a long-term perspective.
Let’s take a deeper look into the following oil stocks.
- BP (NYSE:BP)
- Equinor (NYSE:EQNR)
- Royal Dutch Shell (NYSE:RDS-A, NYSE:RDS-B)
- TotalEnergies (NYSE:TTE)
Oil and Gas Stocks to Buy: BP (BP)
With gradual recovery in the global economy coupled with higher oil price, BP stock has trended higher by 12.5% for the year to date in 2021, even after the recent pullback. BP has ambitious plans for transformation towards renewable energy. This is a key factor that’s likely to dictate the stock price trend in the coming years.
To put things into perspective, BP expects to build renewable energy capacity of 20 gigawatts by 2025. With an expected investment plan of $60 billion over the next 10 years, the company expects to increase renewable capacity to 50GW by 2030.
At the same time, BP expects to cut its oil and gas output by 40% by 2030. The company also has an ambitious target of being net zero by 2050. Clearly, BP is among the top oil stocks to consider as it balances its portfolio of assets.
Within the renewable energy portfolio, BP has diversified interest. This includes assets in onshore and offshore wind projects. However, the primary focus is on solar energy projects. Currently, 83% of the development pipeline is related to solar energy.
The use of hydrogen as a source of energy also seems to have gained traction in the recent past. BP aims to capture 10% of the clean hydrogen market by 2030.
Overall, BP has ambitious plans and the financial flexibility for execution. BP stock looks attractive at current levels after under-performing the markets in the last 12-months.
EQNR stock is another attractive name among oil stocks with a focus on renewable energy. Before talking about the company’s renewable focus, it’s important to mention that Equinor has quality oil assets.
Overall, the company’s oil and gas assets have a break-even price of near $35 per barrel. Robust free cash flows can be expected as Brent oil trades above $70 per barrel. It’s very likely that Equinor will use the internal cash buffer for investment in renewable energy projects in the coming years.
In terms of Equinor’s climate strategy, the company is targeting carbon-neutral global operations by 2030. Similar to BP, the company expects to reduce net carbon intensity to zero by 2050.
Specific to renewable assets, Equinor is targeting 4GW-6GW of installed capacity by 2026. The company expects to increase renewable capacity to 12-16GW by 2035.
Equinor’s CEO expects that “a decade from now, more than half of capital expenditure will go to investments such as wind power, solar plants and carbon capture and storage.”
Coming back to the oil and gas segment, Equinor expects to deliver an annual production growth of 3% through 2026. If oil prices remain firm, the company is well positioned for robust cash flows. This will ensure that dividends sustain and possibly increase in the next few years.
Oil and Gas Stocks to Buy: Royal Dutch Shell (RDS.A)
Shell is also among the front-runners when it comes to a gradual transition towards the renewable energy sector. The company must reduce the net carbon intensity by 45% in or before 2035. Further, Shell expects to reduce net carbon intensity by 100% by 2050.
It’s worth noting that the company’s oil production already peaked in 2019. Production is expected to decline at 1% to 2% per annum. At the same time, the company has targeted an increase in gas share of hydrocarbon production to 55%.
By 2030, Shell has also targeted to deliver an equivalent of 50 million households with renewable electricity. As the electric vehicle segment grows, investment in charging infrastructure is critical. Shell is likely to operate 2.5 million EV charging points by 2030.
Further, Shell is also focused on significantly increasing the production of low carbon fuels (biofuels and hydrogen). The target is an eight-fold increase in low-carbon fuels by 2030.
For the current year, RDS.A stock has trended higher by 5%, after the recent, sharp dip. There seems to be a strong consolidation around current levels. An attractive dividend yield of 3.6% is another reason to consider the stock.
TTE stock is another name among oil stocks that is worth considering as the company shifts focus to renewable energy. TTE stock also offers an annual dividend of $3.12. This translates into an attractive dividend yield of 7.6%.
Earlier this year, Total rebranded itself as TotalEnergies. The re-branding is a part of the efforts to shift focus to renewable energy sources. Like most of the oil and gas majors, the company is targeting net carbon neutrality by 2050.
For TotalEnergies, the focus is on solar and onshore wind plants. The company is targeting a capacity of 100GW by 2030. That’s significantly higher than the likes of BP and Equinor.
For 2020, the company reported cash flow from operations of $14.8 billion. Therefore, the company’s investment is renewable energy is likely to be internally funded. OCF is likely to be higher in the coming years with meaningful recovery in oil price.
Overall, TTE stock looks like a quality dividend stock. Additionally, the company is attractive as it pursues a big shift towards renewable energy sources.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.