Generation RENEW: BP Proving You Can Teach An Old Dog New Tricks

 

On August 6, Reuters reported energy giant BP is preparing to sell a large chunk of its oil and gas assets in order to finance investment in renewable energy. BP is formerly British Petroleum and dates back to the Anglo-Persian Oil Company formed in 1908. It is one of the world’s seven oil and gas “supermajors”, characterized by vertical integration touching all parts of the traditional oil and gas chain from exploration and production to petrochemicals, refined product distribution, and even power generation. Who’s next? Exxon?

 

 

This all leads to the age-old adage of “follow the money”, and in the context of investing if you “follow the money” you will typically find the future. There is a reason FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks have performed so well over the last decade, and why the top 10 companies in the S&P 500 are dominated by tech, worth $8 trillion, and represent 29% of the index. The world is changing.

 

Source:  Wall Street Journal

 

It’s our view that smaller, more nimble companies typically lead the way forward. When a supermajor like BP starts diverting investment dollars away from its core competency it makes you think. Large companies with large bureaucracies are like aircraft carriers when it comes to strategy, it can take a long time to turn the boat. So, we think it’s safe to say that if BP (and other supermajors) are investing in clean energy that renewables investing has reached the mainstream.

 

Source:  Goldman Sachs

 

Renewable energy investment is an accelerating trend, but it’s not a new one. As per the below chart from Goldman Sachs, renewable energy capex as a percent of total energy capex is set to reach roughly 25% in 2021. For the first year in history, spending on renewable power supply will surpass spending in upstream oil and gas. This is a remarkable milestone for an industry that until recently has been largely considered niche. The moment for meshing Main Street desires and Wall Street capital allocation is now and underpins our enthusiasm for this multi-decade megatrend.

 

Source:  Goldman Sachs

 

Renewables Roundup

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Michael Cerasoli, CFA

Michael leads the Renewables effort at Eagle Global Advisors, including the development of active and passive strategies, and portfolio management. He is also the Co-Head of the Energy Infrastructure team and Co-Chair of the Energy Infrastructure Investment Committee.  He shares Portfolio Manager responsibilities for the firm’s four separate Energy Infrastructure strategies. Prior to joining Eagle in May 2014 Michael was employed by Goldman, Sachs & Co. for ten years where he covered Midstream for seven years and small/mid cap Oil Services for three.  Prior to Goldman, Michael worked for three years as a sell-side equity trader at various Wall Street firms. He earned bachelor’s degrees in Economics and History from Union College, and an MBA from the Hagan School of Business at Iona College. Michael holds the Chartered Financial Analyst designation.

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Curt Pabst

Curt is a member of the Energy Infrastructure Investment Committee and manages institutional client relationships for Eagle Global. Prior to joining Eagle, Curt held a similar position at an energy infrastructure asset management firm in Dallas, Texas. He has 39 years of investment experience.  Curt began his career at Kidder, Peabody in the institutional fixed income division, and spent a combined 15 years at Kidder, Peabody and then Merrill Lynch where he left as a Director of the firm. He has served as a partner/principal in both a hedge fund of funds and a venture capital fund. He received his bachelor’s degree in Economics from Grinnell College.

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