If data is the new oil, Is there any future in oil for investors? Consider Aramco and BP and compare their prospects with those of Apple.
If data is the new oil, is there any future in oil for investors?
It was in 2017 when the Economist magazine suggested that data was the new oil. Of course if you drill down — which I guess the oil industry isn’t at the moment, not much anyway — you will find that the comparison between oil and data is not entirely accurate.
But in one sense the comparison is appropriate. In the 20th Century, oil was the lifeblood of the economy — now it seems to be data.
If you don’t believe me, consider this example. As renewables become our main source of energy, we hit a problem — what do we do when it is neither sunny or windy? The answer partly involves AI taking a ton of data, including weather forecasts, to work out the most effective way to channel energy at times when it’s supply is plentiful. I can imagine that by the end of this decade, an autonomous electric vehicle will get a message saying that in two hours it will be both windy and sunny; charge up the battery.
So actually, on thinking about it, I do believe that the comparison between data and oil is apt, and in the example above, it is literally correct.
What does this mean for oil companies? Are they still worthy of investor’s money?
Aramco’s incredibly shrinking asset
The latest news out of Aramco, the Saudi Arabian oil company which was floated last year to become the world’s biggest company, is not so good.
There is one record which will always belong to Aramco: it will always be the first-ever company to be valued at over $2 trillion. It achieved this a couple of days after IPO last December. But it didn’t last long.
A day or so later it was below $2 trillion and has never been back. As I write, Aramco’s valuation is 6.61 trillion Saudi Riyals, which is roughly $1.8 trillion.
Apple is valued at $1.9 trillion. Microsoft and Amazon are both worth around $1.6 trillion.
I find it interesting to compare results. In the latest quarter, Aramco posted net income of $6.6 billion, compared with $24.7 billion this time last year. Apple saw net income increase to $11 billion.
Of course, the big difference between techs and oil companies, for short-term return for investors, is dividends. Aramco is still sticking to its plans for a $75 billion annual dividend, even though this will significantly exceed cash flow this year — probably. (Then again, Saudi Arabia needs the money.)
You could, of course, look at other oil companies. Little BP has a market cap of £60 billion, but pays a dividend with an 11 per cent yield.
Royal Dutch Shell is valued at £92 billion and pays out a dividend yield at 12.5 per cent.
Exxon Mobil, a one time biggest company in the world by market cap, before Apple overtook it, is now valued at $184 billion.
Consider BP again. Now I like its new (ish) CEO, Bernard Looney. His plans to move the company to net-zero carbon emissions are bold indeed. Looney is trying to present BP as the oil company leading the industry away from oil.
But the fact is, BP posted a massive loss in the latest quarter.
Covid or oil bubble
I understand that a good chunk of the challenges besetting the likes of Aramco and BP are Covid and lockdowns related.
One of the ironic things about Apple and Exxon’s valuation, is that when Apple overtook Exxon, many cited this as proof of another tech bubble. In fact, since that point, just over half a decade ago, Exxon’s shares have halved, Apple’s have increased roughly six-fold.
I am tempted to say that it feels almost as if it is oil that has become the new bubble: as oil companies desperately try to prop up shares with dividends, clinging on to their 20th Century business model.
I note that BP invested $5 million in Belmont Technology last year — that’s an AI company. And as you know, AI builds upon data.
Data, it seems, really is the new oil. I worry about what that means for oil companies.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees