In the last year, shares in BP (LSE: BP) have fallen by around 18%. Clearly, that’s a disappointing performance and it comes after a troubled period for the oil and gas producer. With Russian sanctions and the 2010 oil spill having hurt the company’s share price performance prior up to the last year, BP’s investors have endured a tough period.

However, these challenges have largely been overcome by the company. And best of all, its asset base remains hugely appealing, with BP having the potential to deliver impressive financial and share price performance over the medium-to-long term.

For example, BP has been able to improve its efficiencies and cut costs in the face of a huge oil price decline. This has positioned the company for future growth and with the worst of the oil price crisis now seemingly behind BP, it’s forecast to increase its pre-tax profit from £2.8bn in the current financial year to as much as £6.7bn in the next one.

Such a rapid increase in BP’s profitability has the potential to cause a step change in investor sentiment towards the stock and could easily reverse the 18% fall in the company’s share price over the last year.

Bargain buy?

Clearly, many investors may be put off by the fact that investor sentiment towards BP has evidently been weak in the last year. For them, it may signal that things could get worse before they get better and that BP is a higher-risk buy. However on the flip side, BP now seems to offer a wider margin of safety and this could limit its downside risk and enhance its capital gain potential. In other words, BP is still a very strong company with an excellent asset base, but it now trades 18% lower than it did just a year ago.

Certainly, the outlook for oil has worsened in recent years, but the risk of falling commodity prices has always been present for BP and its resources industry peers. Perhaps the one thing that has changed is that the investment community is now more aware of the threat of lower commodity prices. And while oil had been a relatively stable asset post-credit crunch, it’s clear that with recent technological developments there’s not a world shortage of oil.

However, there may be a shortage of producers willing to operate at $50 per barrel, and so the long-term outlook for oil remains positive. And with demand from the emerging world on the rise, the equilibrium oil price is likely to be much higher than $50 per barrel.

All of this is good news for BP and while the company may have to endure further challenges over the short-to-medium term, its long-term outlook (and that of its investors) remains very encouraging.

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Peter Stephens owns shares of BP. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.