BP PLC moved to dump its shares in oil giant Rosneft PJSC, taking a financial hit of as much as US$25 billion by joining the campaign to isolate Russia’s economy.
The surprise move from the British company is the latest sign of how far Western powers are willing to go to punish Russian President Vladimir Putin for his invasion of Ukraine. BP has been in Russia for three decades and just weeks ago was staunchly defending its presence there.
However, it was coming under growing pressure from the UK government over the alliance with Rosneft.
Photo: Reuters
BP chief executive Bernard Looney was summoned by UK Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng to explain the company’s Russian links last week.
Kwarteng welcomed BP’s move on Sunday.
“This military action represents a fundamental change,” BP chairman Helge Lund said in a statement. “It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue.”
BP did not say whether it was planning to sell its about 20 percent stake in Rosneft, or simply walk away. Any potential buyer would have to navigate a tightening web of economic sanctions that would make any transaction extremely difficult.
In a memo to employees, Looney said there would be “financial consequences” from the move that would show up in its next quarterly results.
A spokesperson said there could be a writedown of as much as US$25 billion.
The London-based company did confirm that it would no longer account for its share of oil and gas reserves, production and profit from its stake in Rosneft.
Looney is also to resign with immediate effect from the Russian company’s board, as will his predecessor, Bob Dudley.
Moreover, BP is to exit its other business in Russia, which includes three joint ventures with a carrying value on its books of about US$1.4 billion.
BP’s move — and the associated financial costs — comes as a surprise to investors. BP shares have risen 15 percent this year, bolstered by rising oil prices even as Russian forces were massing on Ukraine’s border.
Early last month, Looney was still arguing that BP could “avoid politics” in Russia, which was “a large member of the energy system.” The shock of Putin’s large military incursion into Ukraine made that position untenable.
BP has a longer history in Russia than many of its peers. It was one of the first Western oil majors to establish a presence in Russia after the collapse of the Soviet Union.
While BP reported its share of Rosneft production, reserves and profit for accounting purposes, it did not have direct stakes in any of Rosneft’s fields nor physical access to the hydrocarbons they produced. The company did receive regular dividends from Rosneft, which last year amounted to US$640 million, compared with BP’s total operational cash flow of US$23.6 billion.
Rosneft said the move “destroys the successful 30-year cooperation” of the two companies.
“The decision was made under unprecedented pressure from politically engaged forces,” it said in a statement on its Web site.
BP had the largest interest in Russian oil and gas, but its Big Oil peers also hold important stakes in the country. TotalEnergies SE’s operations in Russia represent about US$1.5 billion of its total cash flow, or around 5 percent. It has a stake in gas producer Novatek, as well as a large interest in the Yamal LNG project.
Shell PLC has a large holding in the Gazprom PJSC-led LNG project Sakhalin Energy, while Chevron Corp and Exxon Corp have a presence in lubricants.
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