Are BP (LSE: BP) shares finally getting into gear? They’ve climbed 12% in the last three weeks, although they’re still down 3.5% over 12 months. Any recovery would be a relief for long-suffering investors, who’ve seen the FTSE 100 oil major lose its way in recent years.
Oil and gas producers have faced a tough spell as crude prices fell back sharply after the 2022 surge triggered by Russia’s invasion of Ukraine. Rival Shell (LSE: SHEL) has fared better, with a clearer strategy, stronger profitability, and more generous share buybacks. Over the past year, the Shell share price is also down about 4%, but over five years it’s soared 114%, compared to a modest 36% for BP.
FTSE 100 oil giants
BP is far from a basket case, whatever the headlines suggest. Its Q2 results on 5 August beat expectations, with underlying replacement cost profit rising to $2.4bn, up from $1.4bn in Q1. That beat the $1.8bn forecast and came despite softer energy prices.
Operating cash flow jumped to $6.3bn from $2.9bn the previous quarter, while net debt dipped to $26bn thanks to £900m of cost savings. It’s still high though, and demands attention. The group has brought five oil and gas projects onstream this year and made 10 discoveries, including Brazil’s Santos Basin, its largest find in 25 years. One day, we might see that announcement as a turning point.
Broker Berenberg recently upgraded BP to from Hold to Buy, lifting its price target to 500p from 385p. Today, the shares stand at 418p.
Berenberg cited stronger free cash flow, lower capital spending, cost-cutting progress, and a $20bn divestment plan to cut debt, plus sustained share buybacks into 2026.
Lean, mean, less green
Shell has handled the green transition more smoothly, and many other things too. Half-year earnings, published on 31 July, fell 30% to $9.8bn. The company still announced a $3.5bn buyback over the next three months. With a price-to-earnings ratio of 9.6 compared to a thumping 240 for BP, Shell looks the sturdier of the two. The trailing yield is lower at around 4%, though.
Yet, while BP may be on the ropes, that’s also forcing it to come out swinging. I have a sneaking suspicion that it could prove the better recovery play. So, what do the experts say?
Fighting stock forecasts
Broker consensus has BP’s share price at 447.65p in a year, up 7.12% from today. For Shell, the forecast is 3,006p, a rise of 12.96%. Add projected dividends — BP at 5.72% and Shell at 3.99% — and the forecast total returns rise to 12.84% for BP and 16.95% for Shell. That would see BP turning £10,000 into £11,284, while Shell transforms the same sum into £11,695.
All of which is fun but forecasts should be taken with a large pinch of salt. The numbers suggest Shell has the edge, but they’re close.
I’ve backed BP and plan to stick with it, thinking there’s a chance it could outperform if it gets its act together. The company has some catching up to do and hopefully it will do it on my watch. I think it’s worth considering for long-term investors who are aware of the risks. They might consider splitting the difference and buying Shell too.
