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Highlights
- BP has announced its exit and will abandon its 19.75% stake in the Russian oil company Rosneft due to immense pressure from the UK Government.
- BP’s decision will have considerable financial consequences for the London-headquartered oil company.
Russia’s invasion of Ukraine has shaken the world. With the crisis escalating, various economic sanctions are being levied on Russia by the West to hit its economy. The UK, along with the US and EU, have banned travel and froze the assets of several Russian individuals as well as businesses. UK-based oil company BP (LON: BP.), which owns about 20% of the Russian oil company Rosneft (LON: ROSN), has been under immense pressure to ditch its stakes in the state-owned Rosneft as a retaliatory move, to which it has now agreed.
BP’s exit from Rosneft
After the commencement of a full-blown war and pressure from the UK Government due to its association with Russia, oil supermajor BP announced on 27 February that it is abandoning its 19.75% stake in Rosneft. At the end of 2021, this stake was valued at around £10.4 billion, and BP is ready to ditch it as the Russian invasion of Ukraine has fundamentally changed London’s equation with Moscow.
BP has been present in Russia for more than 30 years since Soviet Union collapsed, but now their relationship has changed due to Russia’s aggressive policies not aligning with BP’s approach. The decision of BP to abandon Rosneft has been welcomed by the UK Government, but the move would have considerable financial consequences for the London-headquartered oil major.
At the end of 2022’s first quarter after its exit from Rosneft, around $25 billion would be written down by BP. In the long run, the exit may potentially impact BP significantly as Rosneft has been generating a valuable income stream for BP, and recently around one-fifth of BP’s 2021 profit of US$12.8 billion was attributed to Rosneft. The strategic partnership of the two companies has been in place for years now, and over the past two decades, around £27 billion has been gained by BP through its operations in Russia.
RELATED READ: BP, Imperial Brands: Are these good buys amid Russia-Ukraine chaos?
BP’s share price performance
London-based oil and gas firm BP plc is listed on the London Stock exchange’s main market since March 1954. The market cap of the FTSE100-listed company stood at £73,899.22 million as of 25 February 2022. BP plc’s shares closed at GBX 378.50, up by 3.60%, on 25 February 2022.
BP has performed quite well even during the pandemic phase due to surging oil prices and it has delivered a return of 29.73% to its shareholders over the last one year as of 25 February 2022, while its year-to-date return stood at 14.52%.
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Rosneft’s share price performance
Russian oil refiner and leading crude exporter, Rosneft, has a secondary listing on the London Stock exchange’s main market since July 2006. The market cap of the company stood at £36,966.25 million as of 25 February 2022. With the escalation of the conflict, Rosneft Oil Company’s shares have gone up significantly, closing at USD 4.68, up by 69.87%, on 25 February 2022.
However, the value of the company has gone down over the past year, and it has given a negative return of -32.31% over the last one year as of 25 February 2022, while its year-to-date return stood at -41.81%.
RELATED READ: PJSC Gazprom, Rosneft: Should you hold these amid sanctions against Russia?
Bottomline
BP’s exit from Rosneft amid the crisis represents the amount of pressure that UK companies are facing to abandon their operations in Russia to isolate it. More companies may follow BP’s lead to retaliate against Russia if the conflict intensifies further and more sanctions are levied on Russia.
Apart from BP, another oil and gas supermajor TotalEnergies SE (LON: TTE) also has significant operations in Russia, which contribute up to around $1.5 billion to its total cash flow. It also has stakes in the Yamal LNG project as well as in Novatek. British oil giant Shell (LON:SHEL) also has stakes in Russia’s state-owned Gazprom (LON: OGZD). It is hard to predict the trajectory of the conflict, but these companies may potentially get impacted by the Government’s current retaliation against Russia.
