British oil giant BP said on Sunday it would “leave” its nearly 20 percent stake in Rosneft, the Russian state-controlled oil company, making it one of the first major companies to leave Russia after its invasion of Ukraine.
London-based BP has been working in Russia for more than 30 years, but the attack on Ukraine “marks a fundamental change,” company chairman Helge Lund said in a statement on Sunday. “It has led BP’s board to conclude after a thorough process that our involvement with Rosneft, a state-owned company, simply cannot continue.”
As Russia becomes increasingly toxic in the eyes of the world – severe sanctions pile up, planes flying out of Russia are blocked from other countries’ skies and protests spread – BP’s decision could encourage other companies to follow suit .
Also on Sunday, the Norwegian sovereign wealth fund said it would divest its Russian investments. In addition, companies doing business in Russia are bracing for consequences to their bottom line as sanctions are about to hamper the Russian economy.
BP has come under pressure from both the UK government and opposition MPs over the Rosneft stake in recent days. Prime Minister Boris Johnson has campaigned against the Russian invasion ordered by President Vladimir V. Putin, citing a strong argument that Europe must quickly become less dependent on natural gas imports from Russia.
Under these circumstances, BP’s large stake in Rosneft seemed increasingly untenable. The government’s concerns were raised Friday afternoon during a video call between Mr Looney and the company secretary, Kwasi Kwarteng. A BP spokesperson, David Nicholas, said the decision was taken by BP’s board “after careful and considered consideration”.
Mr Kwarteng praised the decision on Sunday. “Ukraine’s unprovoked invasion of Ukraine should be a wake-up call for British companies with commercial interests in Putin’s Russia,” he said on Twitter†
It was not clear how BP would realize its departure from Rosneft. A BP spokesperson said the company would begin selling its stake, valued at $14 billion by BP late last year, but wasn’t sure how it would accomplish that. Rosneft shares have plummeted in recent days and the only buyers may be Russian state entities.
BP also said that both its CEO, Bernard Looney, and his predecessor, Bob Dudley, would resign their seats on Rosneft’s board of directors.
The opportunity to buy a substantial portion of one of the world’s largest oil producers could also appeal to other state-owned companies, such as those from China who are willing to go bargain hunting in Russia.
Upon exiting Rosneft, BP may spark protests from investors over the resulting loss of dividends from its Russian stake and market value. On the other hand, some analysts welcomed BP’s move.
“While we’re surprised it happened so quickly, stock investors will now benefit from the removal of Russian newsflow volatility and much stronger” environmental credentials 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 book its share of Rosneft’s profits ($2.7 billion last year) and reserves (about 55 percent of BP’s holdings) and manufacturing (about a third).
BP received $600 million in dividends from Rosneft last year and was 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 possibly much more, related to the Rosneft holding company.
While BP is the western oil company with the most to lose in Russia, it will remain a relatively large player that under Mr. Looney has invested aggressively in offshore wind and other clean energy companies, although these remain small compared to oil and gas at the time. business.
Saying goodbye to Rosneft fits this new approach. Biraj Borkhataria, an analyst at RBC Capital Markets, said that “Rosneft’s stake is out of sync with BP’s longer-term strategic direction,” although “walking away at this point is clearly not ideal from a shareholder value perspective.”
BP’s departure from Rosneft, once completed, will at least draw a temporary line in BP’s long experiment with Russia, which began early this century with the company investing $8 billion in a joint venture called TNK- BP with a group of Russian oligarchs led by Mikhail Fridman.
After a decade of fractious relationships between the partners, BP sold its stake in the joint venture to Rosneft in 2013 for $12.5 billion in cash plus its 19.75 percent stake in Rosneft.
Other major Western oil companies may also be feeling a chill about continuing their operations in Russia. TotalEnergies, the French giant, has a stake in Novatek, a Russian gas producer, and a stake in a major liquefied natural gas plant in the Russian Arctic. Shell has a modest stake in an LNG plant on Sakhalin Island in the Russian Far East, where Exxon Mobil has been producing oil in a joint venture with Rosneft for a quarter of a century.
Analysts say the Russian business has already lost relative importance in the portfolios of the Western oil industry. Russia may have a huge oil and gas supply, but its appetite for investment has been held back by a combination of climate change concerns and sanctions imposed on Russian industry over Putin’s 2014 annexation of Crimea.
Rising oil and gas prices and resulting higher profits could also help put the profits that companies make in Russia this year on paper, analysts say.
