bp - Edison Group

There are five key reasons why bp represents an interesting investment case:

bp has fundamentally reset its strategy, re-emphasising its higher-returning oil and gas business. While it will maintain a disciplined approach to selective renewable investments where returns compete, bp’s updated approach focuses on pivoting from growing renewables to reinvesting in oil and gas, where it sees strong near-term returns. Management is aiming for adjusted free cash flow CAGR of more than 20% between 2024 and 2027, with reinvestment skewed toward advantaged oil projects and liquefied natural gas (LNG).
The company’s strategic reset in the near term is focusing on driving performance by improving its downstream operations and a self-help plan through a significant structural cost reduction programme, which should see a reduction in costs of $4–5bn by end-2027. The company is also focused on increasing the strength and resilience of its balance sheet, through a significant $20bn divestment programme. Proceeds from transactions, including Castrol and LSBP, will be allocated to drive down net debt from $26bn (September 2025) to $14–18bn by 2027.
bp is focusing on capital discipline and cash returns. The company has committed to returning 30–40% of operating cash flow to shareholders through dividends and share buybacks through to 2027. With capex now tightly focused (c $13–15bn per year vs more than $16bn previously), bp has the flexibility to continue delivering to shareholders even in a volatile macroeconomic environment.
The company trades at a discount to its peers. The market is looking for bp to deliver on its new plan to address this discount. bp offers a dividend yield of c 6% in FY26e (on consensus estimates at the current stock price), which is c 6% above the peer average, while its buyback programme represents an additional return.
The thematic tailwind of energy security continues to benefit bp. The global repricing of energy following the Ukraine conflict has reaffirmed the critical role of oil and gas in maintaining energy affordability and security. bp’s global LNG portfolio, pipeline of deepwater projects and presence in geopolitically strategic regions make it a key beneficiary of long-term supply-demand tightness in hydrocarbons, even as low-carbon investments ramp gradually.

Conclusion

bp offers investors a blend of value and resilience, combining discounted valuation and strong cash returns with exposure to high-margin oil and gas assets. The company’s reset strategic focus enhances earnings visibility, while its integrated model and disciplined capital allocation provide downside protection and upside optionality. For investors seeking reliable income, inflation-hedge characteristics and participation in the theme of energy security, bp stands out as a differentiated and attractively positioned opportunity.

Published 02 Sept 2025

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