The BP share price is up a third. Full steam ahead in 2023?

If I had invested in it BP (LSE: BP) this time last year, I would be sitting on a handsome profit already. Not only has BP’s share price increased by 33% in that time, the oil company also pays a handsome dividend. The yield is around 4%. If I had bought it a year ago I would have got a higher yield now because of the lower purchase price.

So, can the good times keep rolling – and if so, should I invest now?

Invest in oil and gas stocks

In broad terms, I break down oil and gas companies into two groups.

The first group sees companies developing potential energy projects at an early stage. Often they have only a few projects in Go, sometimes only one. If they strike oil or gas in a big way, these small companies could see their stock prices rise. But there’s an obvious risk with concentrating the business’s operations, so I’m not buying the stock.

Another group of energy companies include big boys like BP and shell. They already have a diverse portfolio of operational assets, as well as other speculative development projects. That means they are unlikely to skyrocket in value at the end of one project that performs well. But the company is benefiting from the diversified income streams it already has from various live projects. Last year, for example, BP pumped more than 20 million barrels of oil (and the equivalent of) daily on average. That’s a lot of oil!

By investing in companies like BP or Shell, I can gain exposure to the overall energy market. But some energy majors are better than others because of their asset base, strategy or cost structure. So what about BP?

Good is not good

My concern with BP is that while it runs well, it is not ‘best in class’. If I want to expose my portfolio to energy, why choose BP over one of my competitors?

The company has cut its dividend over the past few years while its U.S. rivals have been doing so Exxon stay steady. It has also pushed hard towards non-fossil fuels. I think that could be an important future growth area. But right now, I see it as a potentially disruptive drag on the overall profitability of the company.

Last year, BP’s net profit (after-tax profit as a percentage of revenue) was 5.4%. Exxon is higher, at 8.5%. These companies are based in different tax jurisdictions and one year is just an overview. But I’m the difference marked in the profit margin highlights BP which is less profitable in the mix of operations compared to competitors in which I can invest instead.

Oil price concerns

However, BP’s nearly $8.5bn profit after tax last year is still a lot. If energy prices remain high or rise further, BP’s share price could continue to rise.

Global energy prices are out of the company’s control, but neither are strategic choices about dividends and business mix. I also think that energy prices will decrease in the coming years. That could affect turnover and profits at energy companies including BP.

On that basis, I would not add BP shares to my portfolio.