High oil and gas prices following Russia’s invasion of Ukraine boosted investor interest in energy giants as profits soared. However, with prices beginning to fall back, BP (LSE:BP.) shares have flatlined in 2023.
I don’t own shares in the FTSE 100 company. But, if I’d invested £1,000 back in mid-2022, how much would I have today? And what’s the outlook for the BP share price from here?
Let’s explore.
Twelve-month performance
Over the past year, the BP share price climbed 25%. Those gains came from strong performance in the latter half of 2022. Two breakout moves this year weren’t sustained. The stock is down almost 4% from where it was at the start of January.
Taking a longer-term view, the shares are down 20% on a five-year basis.
In July 2022, I could have bought 268 shares at 373.30p each for a total of £1,000.44. Today, the share price stands at 465.90p. Accordingly, my shareholding would be worth £1,248.61 — that’s a healthy return.
What’s more, BP is a dividend stock. Adding passive income to the equation, my return would increase by £56.19, leaving me with £1,304.80.
For investors entering positions today, the company offers a 4.46% dividend yield.
Reasons to buy…
BP’s latest results were encouraging. Aided by commodity market volatility, the company’s oil trading division performed particularly well. Underlying profits for Q1 reached $5bn, comfortably eclipsing the $4.3bn expected by analysts. This prompted the announcement of a new $1.75bn share buyback programme.
In addition, the windfall tax levied on major energy firms hasn’t proved to be the headwind that some feared. In Q1, BP paid $650m in UK tax. Almost half of that came from the new Energy Profits Levy (EPL).
However, it’s a truly global business with operations in over 70 countries. The UK accounts for less than 10% of its global profits. The EPL only applies to profits from oil and gas production on the UK Continental Shelf.
BP’s also making progress towards meeting its 2025 production targets. It recently launched its Mad Dog Phase 2 project in the Gulf of Mexico and commenced production from its third deepwater field in India’s KG D6 block last week.
…and reasons to avoid
Higher interest rates, weak global demand, and higher US production have all contributed to oil prices falling over recent months. Crucially, OPEC+ supply cuts haven’t stopped the downtrend. Since the BP share price is closely linked to oil prices, this could limit further growth.
Longer-term, the firm’s also vulnerable to the global shift towards clean energy sources. BP’s been accused of slowing its transition towards low-carbon alternatives to cash in on high oil prices. Although the company aims for net zero by “2050 or sooner“, governments’ future climate goals represent a potential existential challenge.
What I’m doing
BP shares could continue rising if the company delivers more impressive results, but I’m concerned about the long-term outlook. Granted, the world’s still highly reliant on traditional hydrocarbons, but increasing climate awareness is encouraging ever-growing investment in renewable technologies.
That said, the company has deep pockets. It’s well-placed to re-prioritise sustainability after a recent pivot away from its greener ambitions. I’ll keep the stock on my watchlist for now as I wait for clarity in the long-term strategy.
