BP ‘exit’ stake in Russian oil giant Rosneft
British oil giant BP said on Sunday it would “pull out” of its nearly 20 percent stake in Russian state-controlled oil company Rosneft. BP also said its chief executive, Bernard Looney, and his predecessor, Bob Dudley, would both resign their seats on the Rosneft board.
BP, which is based in London, has operated in Russia for more than 30 years, but the invasion of Ukraine “represents a fundamental change,” company president Helge Lund said in a statement on Sunday. “This has led the BP board to conclude, after a full process, that our partnership with Rosneft, a state-owned enterprise, simply cannot continue.”
BP has come under pressure in recent days from both the British government and opposition MPs over a stake in Rosneft. Prime Minister Boris Johnson has taken a tough stand against the Russian offensive ordered by President Vladimir V. Putin, arguing strongly that Europe needs to sharply reduce its reliance on natural gas imports from Russia.
Under these circumstances, BP’s large stake in Rosneft seemed increasingly volatile. The government’s concerns were expressed during a video call between Mr Luni and the business secretary, Kwasi Quarteng, on Friday afternoon. David Nichols, a spokesman for BP, said the decision was made “after careful and due consideration” by the BP board.
Mr Quarteng praised the decision on Sunday. “Russia’s unprovoked invasion of Ukraine should be a wake-up call for British businesses with commercial interests in Putin’s Russia,” he said on twitter,
It was unclear how BP would complete the exit from Rosneft. A BP spokesperson said the company would begin disposing of its stake, which is valued at BP’s $14 billion, at the end of last year, but did not yet know how it would accomplish this. Rosneft shares have declined in recent days, and the sole buyers may be Russian state entities. The opportunity to buy a substantial piece of one of the world’s largest oil producers could also attract other state-owned companies, such as those from China willing to bargain in Russia.
BP, in its exit from Rosneft, may attract opposition from investors over the Russian stake as well as the consequent loss of dividends from market value. On the other hand, some analysts have welcomed BP’s move.
“While we are surprised it happened so quickly, equity investors will now benefit from the volatility of Russian news flows and the more robust” environmental credentials on BP, said Oswald Klimt, an analyst at Bernstein, a research firm.
The resignation of the board will result in a change of accounts at BP. The company will no longer book its share of Rosneft’s profits ($2.7 billion last year) and reserves (about 55 percent of BP’s stake), as well as production (about a third).
BP received a $600 million dividend from Rosneft last year, and expected to receive more this year due to higher oil prices.
BP also said it would write off at least $11 billion in the first quarter of 2022, but potentially much more, related to Rosneft Holding.
While BP is the biggest loser in Russia’s western oil company, it will remain a relatively large player that has invested aggressively in offshore wind and other clean energy businesses under Mr. Looney, albeit smaller than in oil and gas. Huh. company.
Moving away from Rosneft fits in with this new deal. “Rosneft’s stake is out of sync with BP’s long-term strategic direction,” said Biraj Borkhtaria, an analyst at RBC Capital Markets, even though “walking away at this time is clearly not ideal from a shareholder value standpoint.”
Understand Russia’s attack on Ukraine
What is at the root of this attack? Russia considers Ukraine to be within its natural sphere of influence, and it has been alarmed by Ukraine’s proximity to the West and the possibility of the country joining NATO or the European Union. While Ukraine is part of neither, it receives financial and military aid from the United States and Europe.
BP’s exit from Rosneft, once completed, will draw at least a tentative line on BP’s long experiment with Russia, which the company raised earlier this century in a joint venture called TNK-BP for $8 billion. had invested, in which there were Russian oligarchs headed by Mikhail. Friedman.
After a decade of stormy relations between the partners, BP sold its stake in the joint venture to Rosneft in 2013 for $12.5 billion in cash and a 19.75 percent stake to Rosneft.
Other major Western oil companies may also feel cold as they continue to operate in Russia. Total Energies, the French giant, has a stake in Russian gas producer Novatek, and a large liquefied natural gas facility in the Russian Arctic. Shell has a minor stake in an LNG facility on the island of Sakhalin in the Russian Far East, where Exxon Mobil has been producing oil in a joint venture with Rosneft for a quarter century.
Analysts say Russian operations have already lost relative importance in the portfolio of the Western oil industry. Russia may have vast reserves of oil and gas, but Mr. Putin’s annexation of Crimea in 2014 has curbed its appetite to invest there, a combination of climate change concerns and sanctions imposed on Russian industry. .
Analysts say rising oil and gas prices and consequently higher profits could also impact the earnings of companies in Russia this year.
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