Since the beginning of the year, falling oil prices have burdened the shares of oil companies. And more than one trades in the territory, which in my opinion should draw the attention of investors of value.

One of the most dramatic was Bishop (LSE: BP) – After a fall 23% from the beginning of January, shares currently have dividend performance worth over 6%. But there are some things that investors should know.

Quotation

At first glance, BP is very similar to Shell (LSE: Shel) – second FTSE 100 Oil major. For example, both of them trade in price to profit (p/e) about nine based on the expected earnings next year.

In addition, each of them has a speed of around 60 USD per barrel. As long as oil prices remain above this level – which they usually have from the pandemic – both companies remain profitable.

Both are also similar in terms of strategy. After an unsuccessful undertaking in renewable energy sources, BP moved its priorities back to hydrocarbons on which Shell was focused.

This makes it look like there is not much difference between these two supplies. But there is at least one significant difference that investors must pay attention to.

Balance

This year Berkshire Hathaway Warren Buffett, a shareholder gathering, said he spends more time on a balance than most investors. And thanks to BP and Shell it is quite revealing.

Shell has an equity index of 0.4. This means that the company can tidy the entire debt, increasing the number of shares by 40%.

On the other hand, BP has a debt ratio to an equity of 1.2. Therefore, cleaning the debt by issuing shares would therefore require a company more than twice as much as the number of shares.

The debt index of the Equity of 1.2 is not only higher than Shell, is high according to historical BP standards. It is even higher than during the Covid-19 pandemic and this is a significant risk.

Investing in oil companies

Falling oil prices burden energy reserves, but I think lower prices make it a decent time to consider the purchase. The question is whether BP is the most attractive opportunity.

I see this, the company’s balance sheet is currently the biggest risk in action. The company makes moves to reduce the level of debt by saving costs and sale.

The problem is that I am not convinced that now there is a good time for oil companies sell assets. When the prices are low, it is better to be buyer than a seller.

As a result, I do not think that BP shares are underestimated – at least not compared to other oil companies. I am not against the industry as a whole, but I think there are better opportunities to consider elsewhere.

Activism

It is worth noting that the BP is an investor activist. Elliott Management became the main shareholder at the beginning of this year and strives for reform.

This can generate sturdy returns. But at lower oil prices around the world, I am looking elsewhere in the oil and gas sector for my own wallet.