The end is nigh?
I’m sure most drivers stuck on the world’s largest car park, the M25, would agree that more people should use public transport. But few are prepared to make the change themselves. I think by now you’re probably getting my point. Most of us want to live in a better world, but we look to others to make the necessary sacrifices.
It’s for this reason that I don’t believe the end is nigh for fossil fuels. That really matters to companies like BP and Royal Dutch Shell. In fact I’ve been listening to experts harping on about the end of our reliance on fossil fuels ever since I was a child. And believe me, that was a very long time ago.
Think again
So for those of you who think that the big oil firms are doomed, I would say, think again. Oil has been described as the lifeblood of the global economy on many occasions, with the invasion of Iraq and bombing of Libya possibly serving as proof that we are willing to do just about anything to keep it flowing. Indeed, government documents have revealed that plans to exploit Iraq’s oil reserves were discussed by ministers a whole year before the invasion and subsequent destruction of the country.
Now it’s their turn
The fast-growing economies of India and China are demanding more oil than ever before, with consumption rising with each passing year. Their populations are bothered about the environment but there’s also a view that industrialised nations have had their chance to build their economies, get rich, and pollute the atmosphere – now it’s their turn.
So are our London-listed oil majors doomed? Absolutely not, in my view. Both BP and Shell continue to churn out profits and distribute the proceeds to their shareholders. Even in a low oil price environment, the dividends have continued to flow.
Leaner and meaner
In fact, the oil price crash has forced both companies to cut costs, sell off lower-yielding assets, streamline operations, and generally become leaner and meaner in recent years. Last month BP announced second quarter and half-year profits of $144m and $1.6bn respectively, compared with losses of $1.4bn and $2bn for the same periods in 2016. That’s quite a remarkable turnaround.
Meanwhile, over at Shell, the Anglo-Dutch firm revealed a 31% increase in net income for the second quarter to £1.5bn, and a massive 206% improvement to $5bn for the first six months of the year. The quarterly dividend was again held steady at 47¢ per share.
Looking ahead, I see the generous shareholder payouts continuing to flow from both companies, with a 7% annual return currently beating most of their income-generating FTSE 100 counterparts.
Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.