BP vs Shell – mixed fortunes

Recent earnings figures from oil giants BP and Shell have given investors a good look at these vital FTSE 100 components. 

Oil drill
Source: Bloomberg

BP and Shell’s earnings provide key insights into the state of oil majors, a year after the oil price bottomed. Both have seen impressive rebounds in their share price, and the dividends now look much safer than a year ago. But they have different challenges.

BP has had six years of retrenchment, but now it is looking to open the floodgates of exploration and expenditure. Yet, with US supply ramping up, and a shift to electric vehicles looking more likely, it is not at all clear that a supply crunch will arrive any time soon. If BP gets too carried away, then it could find itself with extensive liabilities that it cannot match, and this would revive concerns about the dividend. Crucially, BP’s cash burn will only stop if oil hits $60. These are somewhat worrying times.

The share price has seen a significant pullback from the January highs at 520p. Nonetheless, it seems to have built a firm base at 450p, and, if it can close the gap from results day and recover 480p, a bottom will be in place and a move back to 500p and possibly to 520p will be on the cards.

BP chart

Shell , by contrast, was struggling with an existing debt pile, but now seems to have found the cash flow to help reduce its liabilities and make the dividend safe. In addition, its asset sales are going well, with around a third of its target already met. The firm, thanks to the BG deal, now has the assets to ramp up output in its upstream division – the fields available are high quality and are not overly expensive in exploitation terms. Improving cash flow will be enough for now, but a pick-up in earnings has to appear at some point to keep investors happy.

The rally in Shell has undergone another pullback, which is occurring with impressive regularity. The price found support near the 100-day simple moving average, and crucially has moved back above the £21.40 high from July and October. As long as this holds, we can expect a move back towards £23. 

Shell chart

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