What does the future hold for the BP share price?

Rupert Hargreaves explains why he thinks investors should contract on the long-term outlook for the BP share price over short-term headwinds.

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Around a week ago, I wrote an article on the BP (LSE: BP) share price highlighting five reasons why I thought the stock was undervalued. One of the factors I highlighted was the company’s stake in Rosneft, one of Russia’s largest oil producers. Last year, the stake yielded $1bn in dividends for the UK-based oil group. 

The events that have unfolded over the past week have wholly obliterated my thesis. BP’s outlook has now changed significantly. The company has announced that it will be dumping its Rosneft position incurring a potential cost of $25bn.

BP share price risks 

As the situation remains fluid, it is impossible for me or other analysts to place an actual figure on the cost the corporation will incur exiting this holding. Nevertheless, it is clear that the company’s decision will have a negative impact on its financial position. 

Still, while BP may have to take a financial hit from this development, rising oil prices might offset some of the impact. The price of oil has exploded higher in the past few days. It has charged back above $100 a barrel and could continue to rise further. 

This is terrible news for consumers, but BP’s profits will benefit as one of the world’s largest private oil companies. 

As I noted above, as the situation remains fluid, I think it is impossible to say how BP will benefit from higher oil prices. Disruption from the situation in Eastern Europe could far outweigh any benefits to the company’s bottom line. On the other hand, the enterprise could generate windfall profits. 

In either of these situations, I think some of the key points I made in my last article remain relevant. Most importantly, the company’s heavy investments in renewable and green technologies are going to be significant value drivers for the enterprise over the next decade or so.

Whatever happens over the next few weeks, the corporation should be able to maintain or even increase its renewable investments. 

Green energy focus 

I think this quality will push the BP share price higher in the long term. Investors have been concerned about how the company will deal with the renewable energy transition long before the current geopolitical crisis. I think this factor will continue to dictate the direction of the business over the next five to 10 years. 

As such, it is clear that the BP share price could place plenty of challenges and opportunities from the current geopolitical crisis. However, when focusing on growth in the renewable energy space over the next few decades, I think the company’s future is bright. 

With this being the case, I would be happy to continue to buy the stock for my portfolio today. I am focusing on its potential over the next 10 years, not 10 months. And over the next decade, the company’s fortunes look set to improve. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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