On 26 June, after Shell dismissed reports that it wanted to buy its smaller UK rival, the price of BP (LSE:BP) shares was largely unchanged.
Perhaps investors were sceptical about an ‘exclusive’ in The Wall Street Journal claiming that the two were in “early talks” about a possible merger. But such a response is unusual. However foolish it might be to buy shares on the basis of takeover speculation, many do. And when – as is often the case – there turns out to be no substance to the stories, the stock of the target company usually falls in value.
A difficult year
But BP’s share price has been sinking for some time. Since July 2024, its down 23%. Lower energy prices are partly to blame.
However, there must be other factors at play. We know this because, over the same period, Shell’s share price is down a more modest 10%. And the world’s largest oil company, Saudi Aramco, has seen its market cap fall by 13%. It’s a similar story on the other side of the Atlantic. ExxonMobil and Chevron have experienced 5% and 8% drops, respectively, in their stock market valuations.
Clearly, investors have more concerns about BP than its closest peers.
This could be due to its debt pile which is larger than some of its rivals. Or it might be because it employs more people than Shell even though it’s valued over £90bn less.
Untapped potential
However, the UK energy giant recently made the headlines when Elliott Investment Management disclosed a 5% stake. The activist investor has pushed for a switch away from renewable energy and the divestment of some of its non-core assets.
According to Reuters, it wants to increase free cash flow to $20bn by 2027 — it was approximately $8bn in 2024 — through a series of spending cuts and cost reductions.
If this is achieved, the group would then be in a position to raise its dividend. The recent share price fall has helped push the stock’s yield to an above-average 6.3%. But — in cash terms — its payout over the past four quarters is 28% lower than it was in 2019.
But the sector doesn’t appeal to everyone. And with an estimated $50trn of global assets invested ‘ethically’, I’ve always thought that having a smaller pool of potential investors could be a problem for oil and gas stocks.
However, the most recent trading statistics from the London Stock Exchange show that BP — in terms of the number of trades executed — was the most popular UK stock during the first five months of 2025.
There are plenty of energy companies – not just BP – to choose from. But I think Britain’s number two oil giant is attractively priced at the moment. And I’m hopeful that Elliott Investment Management will help bring about some operational and financial improvements.
However, unlike Shell, I already have a stake in BP. Therefore, to maintain a certain degree of diversification, I don’t want to buy any more of its shares. However, for the reasons outlined above, I think it’s a stock that investors could consider adding to their own portfolios.
