Kwarteng welcomed the move on Sunday.
I welcome BP’s decision to exit its shareholding in Rosneft oil company.
Russia’s unprovoked invasion of Ukraine must be a wake up call for British businesses with commercial interests in Putin’s Russia.
— Kwasi Kwarteng (@KwasiKwarteng) February 27, 2022
“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.”
Rosneft wasn’t immediately available to comment.
BP didn’t say whether it was planning to sell its roughly 20% 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 write-down of as much as $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 will also resign with immediate effect from the Russian company’s board, as will his predecessor Bob Dudley.
BP will also exit its other business in Russia, which include three joint ventures with a carrying value on its books of about $1.4 billion.
The move – and the associated financial costs – will come as a surprise to investors on Monday.
BP shares have risen 15% this year, bolstered by rising oil prices even as Russian forces were massing on Ukraine’s border.
In early February, 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.
John Browne, the chief executive officer at the time, bought a stake in Sidanco in the 1990s, which eventually morphed into TNK-BP, a joint venture with a group of billionaires.
That gave BP direct operational control of Russian oil fields, with large numbers of expat staff in the country.
It was highly profitable, but also fraught with tension between the oligarchs and their Western partners. A bitter battle for control in 2012 ultimately resulted in BP exchanging its stake in TNK-BP for $17 billion in cash and a large chunk of Rosneft shares.
BP’s stake in the Kremlin-controlled oil producer had a lot of symbolism, marking the continuation of three decades of operating in the country, but in many practical ways the alliance was shallower than it appears.
While BP reported its share of Rosneft production, reserves and profit for accounting purposes, it didn’t have direct stakes in any of Rosneft’s fields nor physical access to the hydrocarbons they produced.
The London-based company did receive regular dividends from Rosneft, which last year amounted to $640 million, compared with BP’s total operational cash flow of $23.6 billion.
While BP had the largest interest in Russian oil and gas, it’s Big Oil peers also hold important stakes in the country.
TotalEnergies SE’s operations in Russia represent around $1.5 billion of its total cash flow, or around 5%. 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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