over 1 year ago • 3 mins
BP agreed to buy US renewables firm Archaea Energy for around $4 billion on Monday.
What does this mean?
BP set out an ambitious plan to become net-zero within just thirty years back in 2020. And while plenty of firms have made similar promises in the past, BP seems to really be putting plans into motion: the British energy giant has been using its windfall profit to fund its green initiatives, and it just snapped up leading renewable natural gas firm Archaea. And get this: the $4-billion deal is an eye-watering 52 times the value of Archaea’s 2021 sales – and the firm’s yet to turn a single dollar of profit. Nothing says commitment to the cause like putting your money where your mouth is.
Why should I care?
For markets: Two roads diverged.
Big energy firms have reached a crossroads. In one direction stretches a road toward a green renewable utopia, where oil and gas have bitten the dust and sustainable energy reigns. But a quick glance down the other road shows a world with lower oil and gas supply, resulting bumper prices, and reservoirs of cash for the producers that stick around. BP seems to be heading for the greener pastures, but time will tell whether it’s just a money-wasting mid-life crisis.
The bigger picture: Playing the long game.
It’s a rare approach BP’s taking here: after all, the oil giant’s paying over the odds and since this acquisition is a bet likely to only pay off in the longer term (if at all), it’ll have to sit tight before it comes good. That kind of move doesn’t typically come across as good news for impatient shareholders, mind you. A big dollop of skepticism about the firm’s push into the renewables space might be one of the reasons why BP’s share price is still way down on its all-time highs back in 2006.
Keep reading for our next story...
Data out on Monday showed that UK house prices continued to rise in October.
What does this mean?
Economists are expecting higher interest rates – and, in turn, bumper mortgage payments – to put rising house prices on ice, but that hasn’t happened just yet. See, snowballing rates actually meant soon-to-be homeowners rushed to put pen to paper before their cheaper mortgage rates expired, which might explain why the average UK asking price rose 0.9% from September to October – the fastest rise in five months. And in fairness, much of that was down to swelling price tags for London’s most expensive homes, while houses lower down the ladder stayed pretty stable. Plus, given that the number of enquiries from new buyers dropped by nearly a fifth over the last few weeks, the market might finally be about to take a breather.
Why should I care?
The bigger picture: Just you wait…
House prices look destined to fall eventually, as mortgage payments are only getting pricier while inflation helps itself to the contents of the country’s wallets. And that’s unlikely to let up anytime soon: survey results from Monday showed economists expect double-digit inflation to stick around until the end of the year, with interest rates predicted to almost double to reach 4.25% by early next year.
Zooming out: If you don’t like my principles, I have others.
The UK government announced a controversial package of tax cuts last month, and markets reacted almost as badly as everyday Brits did. So as any unassailable government would do, it quickly scrambled to undo the damage by saying on Monday that it would do away with the majority of the plans. The latest of many flip-flops will mean less government borrowing and fewer inflation-stoking policies, and investors were all for it: the pound jumped to $1.14, and bonds – which have been at the center of the pension crisis – boasted their own long-awaited rally.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.