So far in 2025, the BP (LSE:BP.) share price has underperformed the FTSE 100. The energy producer has seen its stock increase in value by 3.5% compared to 10.8% for the wider index.
Uncertain energy prices
Unsurprisingly, the biggest influence on the group’s results (and consequently its market-cap) is the price of energy, in particular oil. The price of Brent crude has fallen 14% since the start of the year. At around $65, it’s now back to where it was before Russia invaded Ukraine.
Due to its unpredictable nature, where it goes next is anyone’s guess. The US Energy Information Administration is forecasting an average price of $58 in 2026. Some economists believe $100 is likely if Russia’s forced out of the global oil market by American sanctions on countries buying its output.
With such uncertainty, I think there needs to be other reasons to invest.
A healthy dividend
Those looking for income shares could be attracted by the group’s dividend of 8.32 cents a quarter. This implies a current (13 August) yield of 5.9%.
Of course, there are never any guarantees when it comes to dividends, especially in an industry with notoriously volatile earnings. However, if cash got tight, I think the group’s share buyback programme would be cancelled before it cut back on its dividend.
Therefore, in my opinion, it looks reasonably secure for now.
A sleeping giant
Another reason to buy could be the untapped potential of the group. Compared to Shell, its larger FTSE 100 rival, BP’s relatively inefficient. For example, during the first six months of 2025, its distribution and administration expenses accounted for 9.1% of income compared to 4.3% for Shell. Similarly, BP’s production and manufacturing expenses were equal to 12.8% of revenue versus 7.7% for its peer.
Activist investor Elliott Investment Management’s pushing the group to become more efficient, looking to increase its annual free cash flow from its 2024 level of around $8bn to $20bn by 2027.
If BP could match Shell’s efficiency, it would be able to significantly increase its earnings (and share price) irrespective of what happens to the price of oil and gas.
Final thoughts
Although the sector doesn’t appeal to some ethical investors, the demand for hydrocarbons is still rising. And when ‘peak oil’ comes, consumption isn’t expected to fall quickly thereafter. The group recently announced a large oil discovery in Brazil — its biggest since 1999 and its 10th so far in 2025 — so it should be in a position to keep producing for years to come.
But the oil and gas industry is operationally one of the most difficult. The group’s never really recovered from the Deepwater Horizon disaster of 2010. Prior to the platform explosion, its stock was changing hands for well over £6. Today, its share price is around £4.20.
However, on balance, I believe BP shares are worth considering.
