British oil giant BP on Sunday said it would “withdraw” almost 20% of its stake in Rosneft, the Russian state-controlled oil company, making it one of the first major players first abandoned Russia after the invasion of Ukraine.
BP, based in London, has worked in Russia for more than 30 years, but the attack on Ukraine “represents a fundamental change,” the company’s president, Helge Lund, said in a statement Sunday. “The BP Board of Directors has concluded, after a thorough process, that our engagement with Rosneft, a state-owned enterprise, simply cannot continue.”
As Russia becomes more and more toxic in the eyes of the world – harsh sanctions are piling up, planes flying from Russia are being blocked from other countries’ airspace and protests are spreading – the decision BP may encourage other companies to follow their lead.
Also on Sunday, Norwegian Sovereign Wealth Fund said it would divest its investments in Russia. More, trading companies in Russia are preparing for the consequences of their profits, as sanctions are poised to hit the Russian economy.
BP has come under pressure in recent days from both the UK government and opposition lawmakers over Rosneft’s stake. Prime Minister Boris Johnson has taken a hard line against the Russian invasion ordered by President Vladimir V. Putin, arguing strongly that Europe needs to quickly reduce its dependence on natural gas imports. naturally from Russia.
Under these circumstances, BP’s large holdings in Rosneft became increasingly untenable. The government’s concerns were expressed during a video call between Mr Looney and the business secretary, Kwasi Kwarteng, on Friday afternoon. A BP spokesman, David Nicholas, said the decision was made by the BP board “after careful and appropriate deliberation.”
Mr Kwarteng praised Sunday’s decision. “Russia’s unprovoked invasion of Ukraine should be a wake-up call to British businesses with commercial interests in Putin’s Russia.” he said on Twitter.
It is not clear how BP will implement the withdrawal from Rosneft. A BP spokesman said the company would begin liquidating its shares, which BP valued at $14 billion at the end of last year, but did not yet know how to do so. Rosneft shares have plummeted in recent days, and the only possible buyers are Russian state institutions.
BP also said both its chief executive officer, Bernard Looney and his predecessor, Bob Dudley, would step down from the Rosneft board.
The opportunity to buy a sizable chunk of one of the world’s biggest oil producers could also appeal to other state-owned companies like those from China willing to bargain in Russia.
BP, in withdrawing from Rosneft, could draw protests from investors about the loss of dividends from Russian shares as well as market value. On the other hand, some analysts welcomed BP’s move.
Oswald Clint, an analyst at Bernstein, a research firm, said: “While we’re surprised it happened so quickly, equity investors should now benefit from the exclusion. much stronger volatility in Russian news and environmental coverage” at BP, said Oswald Clint, an analyst at Bernstein, a research firm.
The resignation of the board will lead to accounting changes at BP. The company will no longer share in the profits of Rosneft ($2.7 billion last year) and reserves (about a 55% stake in BP) as well as production (about a third).
BP received $600 million in dividends from Rosneft last year, and should have received more this year due to higher oil prices.
Russia’s Attack on Ukraine and the Global Economy
An increased concern. Russia’s attack on Ukraine could cause Energy prices skyrocketed and food and can wow investors. The economic damage from supply disruptions and economic sanctions will be severe in some countries and industries and go unnoticed in others.
BP also said it would write off at least $11 billion in the first quarter of 2022, but potentially more, related to Rosneft holdings.
While BP is the biggest loss-making Western oil company in Russia, it will remain a relatively large company under Looney. has been actively investing abroad wind and other clean energy businesses, although these are still small compared to oil and gas at the company.
Moving away from Rosneft suits this new move. Biraj Borkhataria, an analyst at RBC Capital Markets, said that “Rosneft’s stake doesn’t align with BP’s long-term strategic direction,” although “going away at this point is clearly not ideal from the perspective of BP.” shareholder value perspective.
BP’s withdrawal from Rosneft, once completed, will at least draw a temporary line on BP’s long-running experiment with Russia, which began earlier this century with the company’s $8 billion investment in joint venture called TNK-BP with a group of Russian oligarchs headed. Mikhail Fridman.
After a decade of turbulent relations between partners, BP sell its shares in a joint venture with Rosneft in 2013 for $12.5 billion in cash plus a 19.75% stake in Rosneft.
Other major Western oil companies may also feel the chills continue to operate in Russia. TotalEnergies, the French giant, has a stake in Novatek, a Russian gas producer, and a stake in a large Russian Arctic liquefied natural gas facility. Shell has a modest stake in an LNG facility on Sakhalin Island in the Russian Far East, where Exxon Mobil has produced oil for a quarter of a century in a joint venture with Rosneft.
Analysts say that Russian activities have lost relative importance in the portfolio of the Western oil industry. Russia may have a lot of oil and gas, but its desire to invest in it has been limited by a combination of concerns about climate change and sanctions imposed on Russian industry after the Putin annexed Crimea in 2014.
Rising oil and gas prices and leading to higher profits could also help with reporting on any earnings that companies make in Russia this year, analysts say .
https://www.nytimes.com/2022/02/27/business/bp-oil-rosneft.html BP to ‘quit’ stake in Russian oil giant Rosneft