The last six months have been difficult for P.A. (LSE: BP.) shareholders (including me), with a stock price down 29%. Although such declines are never pleasant, now is not the time for me to panic and sell my stocks.

Underperforming compared to peers

It is common knowledge that the company’s stock price has underperformed its peers. This explains why it sits on a modest forward position price/earnings ratio (P/E) of 7.2.

Since Murray Auchincloss took over as CEO in September 2023, he has made it clear that the company will remain primarily an oil and gas producer for many decades.

However, despite this position, it remains heavily invested in what it calls “transitional growth engines” (TGE). This includes electric vehicle charging, electrification, biofuels and hydrogen.

Last year, TGE generated $1 billion in EBITDA (earnings before income taxes, depreciation and amortization). The company wants to increase this EBITDA to a level between $3 billion and $4 billion by the end of the decade. The market is clearly skeptical that this can be achieved. Last year, for example, electric vehicle charging lost $300 million.

Share repurchases

Over the past few years, a stable element of its quarterly presentations has been increasing share buybacks. However, in its third quarter update (October 29), it threw a spanner in the works by casting serious doubts on its ability to complete $14 billion in buybacks by 2025.

In some ways this is not surprising. It was easy to make such promises when oil cost $80; less when it’s $70.

The reduction in buybacks may actually turn out to be a blessing in disguise. In recent years, it has bought back a fifth of its entire stock. But at what cost? THE balance sheet weakened with a net debt of $24.2 billion. Additionally, the stock price is falling. I’m starting to wonder if buybacks are still the optimal way to maximize shareholder value.

Opportunity

For me, BP remains a well-run company, with an attractive investment proposition. I remain firmly anchored in the long-term opportunity.

I look across the Atlantic at what Warren Buffett is doing. He purchased a large portion of the exploration and production (E&P) producer’s shares Western oil in 2022. Its stock price has fallen by 30% in two years. But he’s not selling his oil holdings, and neither am I.

The energy transition is real. But no one knows when net zero will become a reality. At the same time, global oil consumption continues to increase.

Ironically, building green infrastructure requires significant amounts of hydrocarbons. Additionally, we are seeing an explosion in the reshoring of manufacturing capacity to the United States, which is driving demand for oil.

As the AI ​​revolution accelerates, demand for energy, particularly natural gas, will explode. Data centers, cloud providers, etc. are very energy intensive.

The following graphic from the E&P producer Devon Energy That sums up the opportunity for me. With the growing demand for energy, I find it hard to believe that the combined value of the oil and gas sector will only represent 4% of the S&P500 in the future.

Source: Devon Energy

With BP shares trading at their lowest level for two years, I couldn’t resist buying a few more for my Stocks and Shares ISA.