BP plc stock (NYSE: BP) has increased by about 7% year-to-date, slightly surpassing the S&P 500’s 2% increase. Currently trading at around $32 per share, the British oil giant appears relatively inexpensive based on valuation metrics – yet the underlying story is much more complex. Strategic changes, mixed financial results, and shifting energy goals require investors to examine BP with both caution and interest. Nevertheless, with energy prices presently on the rise, BP’s significant upstream operations and renewed focus on oil and gas place it in a favorable position for a potential recovery. Also see What’s Fueling Oil Prices?. Further discussion follows. If you’re seeking upside with a smoother experience than holding an individual stock, consider the High Quality portfolio, which has achieved >91% returns since inception while outperforming the S&P.
Mixed Results Amid Strategic Flux
BP’s Q1 results showcased the company’s ongoing struggle between its traditional oil operations and its aspirations in low-carbon energy. The oil production and operations segment displayed resilience, with increased production volumes and realizations enhancing replacement cost profit before interest and tax. The Customers & Products segment also gained from improved realized margins. Conversely, the Gas & Low Carbon segment yielded a weaker performance, impacted by soft gas marketing and trading coupled with declining production. BP’s overall Q1 underlying replacement cost profit was reported at $1.38 billion—significantly below analyst forecasts of $1.6 billion and sharply lower than $2.7 billion from the previous year.
Lower Upstream Outlook
Looking ahead to 2025, BP anticipates reduced upstream production due to asset sales in Egypt and Trinidad. Refining and fuel margins are also under pressure, and a strengthening U.S. dollar continues to affect earnings, as most commodity sales are dollar-denominated. While BP has three new projects and six discoveries in progress, overall production is projected to decline this year. Earlier this year, the company shifted its focus back to hydrocarbons, cutting renewable investments from a planned $5 billion per year to just $1.5–$2 billion, while increasing oil and gas capital expenditures to $10 billion annually.
The strategic overhaul also involves changes in its leadership—Giulia Chierchia, EVP of strategy and sustainability and a key advocate of BP’s green transition, will be leaving in the coming months. Her departure further indicates a shift back to conventional energy priorities.
Valuation: A Discount?
From a valuation perspective, BP appears appealing. The stock is trading at a price-to-sales ratio of just 0.4x – approximately 20% to 30% beneath its five-year average. In contrast, major integrated oil companies like Exxon Mobil (NYSE: XOM), Chevron Corporation (NYSE: CVX), and Shell PLC (NYSE: SHEL) command significantly higher P/S multiples ranging from 0.7x to 1.3x. This discount signifies investor skepticism regarding BP’s changing strategy, lackluster earnings, and structural challenges. However, it also presents an opportunity for upside if the company’s execution stabilizes. Refer to our analysis BP Valuation for further insights into the factors influencing our price estimate for the stock.
Strategy Shift: Back to Black Gold
BP’s strategy has experienced tumultuous changes in recent years. Back in 2020, the company garnered attention with an ambitious plan to reduce oil production by 40% while swiftly increasing investments in renewable energy. However, as oil prices surged and returns from renewables remained disappointing, investor pressure intensified, forcing BP to reassess its direction.
Currently, the company is shifting its focus back to fossil fuels, with the aim of increasing oil and gas output to 2.5 million barrels of oil equivalent per day by 2030, compared to just under 2.4 million last year. This transition places BP on a different trajectory compared to its U.S. rivals. ExxonMobil, for example, is investing $140 billion in enhancing high-margin assets and reducing structural costs—targeting an additional $20 billion in earnings and $30 billion in free cash flow by 2030. Similarly, Chevron is anticipating $10 billion in extra free cash flow by 2026, focusing on operational efficiency and selective, return-oriented investments in lower-carbon initiatives involving carbon capture, hydrogen, and biofuels.
M&A Chatter Unlikely – For Now
Despite speculation regarding BP being a potential M&A target, a takeover seems improbable. The company carries substantial debt totaling $60 billion (as of Q1), a legacy of the Deepwater Horizon incident. This debt burden, coupled with regulatory scrutiny in the U.K., renders an acquisition less appealing for U.S. supermajors who value financial flexibility.
Hydrogen Plays Still On the Table
Even with a reduction in its renewable focus, BP has not abandoned its clean energy aspirations entirely. Hydrogen remains a priority. BP intends to establish 5–7 hydrogen and carbon capture projects globally. This includes collaborations with Iberdrola on a 25-megawatt green hydrogen initiative in Spain and Cummins for a 100-megawatt electrolyzer in Germany, projected to generate 11,000 tons of green hydrogen annually by 2027. BP is also working on H2Teesside, which is planned to be one of the largest blue hydrogen facilities in the U.K.
The Bottom Line
BP’s strategic reset may not attract ESG-oriented investors, but for those with a value perspective, the stock’s undervalued position presents an intriguing opportunity. With its price at $32, and trading at a notable discount compared to peers, BP suggests potential upside, assuming the company can effectively implement its more focused, oil-centric strategy. Trefis collaborates with Empirical Asset Management—a Boston-based wealth manager—whose asset allocation strategies produced positive returns during the 2008-09 period when the S&P lost over 40%. Empirical has integrated the Trefis HQ Portfolio into its asset management framework in order to provide clients with improved returns and lower risks compared to the benchmark index—a less volatile experience, evidenced by HQ Portfolio performance metrics.