Proactive Investors - BP (LON:BP) and Shell (LON:RDSa) might be the bane of environmental protestors but in the City, the oil and gas duo can do no wrong currently.
Two heavyweight brokers this week upgraded their forecasts for the duo, with a big chunk of the upgrade related to their shift (or not) towards greener fuels.
Barclays (LON:BARC) rates the pair among its three top picks in the sector, alongside Total, due to oil and gas =based cash flow for the rest of this decade and a build-out of world-class low-carbon businesses thereafter.
Overall, Barclays is bullish about most of the sector and expects 2023 to see the highest fee cash flow in the sector for at least three decades.
“Demand for oil has already returned to pre-pandemic levels and continues to grow despite economic headwinds and years of underinvestment.”
That will translate into dividend increases and continuation of buybacks in 2024 across the space given our expectation for this excess cash to be available for distribution.
“Our estimates imply an average dividend yield of ~5% in 2023,” added the bank.
“As company managements reiterate a focus on maintaining spending discipline and on value over volume, we expect a further reduction in debt, potentially also contributing to higher distribution to shareholders.”
Barclays even sees some movement on greener topics, with sustainability metrics improving and Scope 1 & 2 carbon intensity in the sector down 13% since 2017 while absolute Scope 3 emissions are down 18% and methane by more than two-thirds over the same period.
Citi, meanwhile, has upgraded its target for BP to 610p, or 11% above the current market price.
Third quarter results are due in about two weeks with the only unpredictability around the contribution of oil and gas trading in the quarter.
BP is currently without a permanent chief executive following the abrupt departure of Bernard Looney and whether that situation changes by the time of the update remains to be seen, adds Citi.
Even so, “The market will seek verification that the strategic shifts of 2023 - building longevity in oil & gas and moving 'transition' to industrial 'decarbonisation' - continue in a similar vein,” said the bank.