The BP (LSE:BP) share price reached 417p per unit in February before the tragic invasion of Ukraine by Russian forces. Prior to that, BP’s share price had gone from strength to strength over the past year as demand for oil soared.
Recent performance
The oil major’s share price remains some way below pre-pandemic levels despite the spot price for many crude benchmarks exceeding $100 a barrel in recent weeks. BP’s share price actually peaked around four years ago, at nearly 600p per share. As such, we can see the current 376p per share is a sizeable discount on the peak.
Nevertheless, BP is up 26% over the last year, which reflects some positive performance data. In 2021, the London-based firm turned a pre-tax profit of $15.2bn. The figure is an impressive turnaround from 2020 when the company recorded losses of nearly $25bn. Moreover, pre-tax profit in 2021 was double that of 2019 and 2017, and comparable with 2018 earnings.
Meanwhile its price-to-earnings ratio (P/E) — which measures its current share price relative to its earnings per share (EPS) — is around 13. The figure is based on 2021 earnings, which despite looking rosy at the end of the year, started badly amid more Covid-19 uncertainty. Assuming oil prices stabilise somewhere just short of where they are now, BP could start to look cheap.
Russia risks
One reason the BP share price tanked more than industry peers following the invasion of Ukraine is the company’s exposure to Russia. The hydrocarbons giant has a major stake in the Russian oil industry, including a 19.75% shareholding in the state-controlled Rosneft. The Russian oil company had contributed about a third of BP’s oil and gas production, according to The Wall Street Journal.
BP’s management had said it would offload its Russian interests but doing so hasn’t proved easy. On Wednesday, it was reported that BP had approached state-backed firms in Asia and the Middle East with the aim of offloading its share. Bloomberg claimed that there has been little traction so far.
Some experts have suggested the most likely outcome is that BP will sell its shareholding back to Rosneft at a considerable discount. The sanctions imposed on Russia will make it difficult to find another buyer.
Is BP right for my portfolio?
BP’s gains due to the soaring oil price are likely to be offset, to some degree, by the discounted sale of its Russian assets. Furthermore, losing production capacity when oil prices are at their highest point in years is not ideal.
I’m certainly cautious on BP due to its exposure to Russia, but I still think the firm will be well positioned to benefit from high oil prices. I will be adding some BP shares to my portfolio but I’m not expecting the share price to soar in the coming months. Instead, I’ll hope for some growth and will take the rather attractive 4.2% dividend.