The share price of FTSE 100 energy giant BP (LSE:BP.) has had a turbulent five years. However, given that the group’s earnings are largely determined by volatile oil and gas prices, this shouldn’t come as a surprise.
Turbulent times
In 2020, the world had to deal with the pandemic. Demand for energy plummeted and prices fell. Two years later, Russia invaded Ukraine sending prices – and BP’s profit – much higher.
More recently, when President Trump threatened to disrupt world trade, the cost of energy fell once again.
We know that for the second quarter of 2025, BP realised an oil price of $67.88/barrel and $3.44/mscf (thousand standard cubic feet) for gas. During 2022, after the group’s former boss described it as a “cash machine”, it earned $89.62 and $10.46 respectively.
Seeing the wood for the trees
With such unpredictability, it’s difficult to know how to assess the investment case for BP. With relatively fixed production costs, the group’s earnings are largely outside the control of its management team, no matter how skilled they might be.
But it’s the same for everyone in the sector. And yet the stock market performance of, for example, Shell has been much better than that of its UK rival. Since July 2020, its market-cap has more than doubled. Over the same period, BP’s share price has increased by a more modest 29%.
Some have noted that, despite being much smaller, BP employs more staff than Shell. And from 2019-2024, its production, manufacturing and distribution costs increased by $10bn whereas Shell’s fell by $1bn.
In relative terms, BP’s debt’s also higher.
So-called activist investor, Elliott Investment Management, is calling on the board to cut some of this fat and dispose of non-core assets to reduce its gearing. It wants to increase free cash flow to $20bn a year by 2027.
Broker upgrade
JP Morgan has recently increased its target price for the stock from 440p to 510p. Interestingly, it claims the group’s 19.75% interest in Rosneft, the state-controlled Russian oil producer, could be worth something if a ceasefire in Ukraine is negotiated.
In 2022, BP took a $24bn hit when it effectively ‘mothballed’ this asset. Since then, due to sanctions, it’s been unable to sell it.
Whether the shareholding has any value remains to be seen – I’m not sure President Putin would want to hand a windfall to a British company. However, leaving this issue to one side, JP Morgan also claims that the group trades at a bigger discount to most of its European peers.
My view
So if BP can get its act together — and make its business more efficient — I reckon it can close the valuation gap with some of its rivals. And with Elliott holding a 5% stake, I think it can help bring about the necessary changes.
In addition, one of the advantages of the lacklustre share price performance has been an improvement in the stock’s yield. Although there are no guarantees, based on amounts paid over the past 12 months ($0.32/23.73p), the stock’s presently yielding 5.9%.
For these reasons, I think BP could be a stock to consider. But due to the unpredictable nature of the industry, anyone taking a stake should be prepared for plenty of ups and downs.
