BP Announces Exit from Russian Market Embracing $25 Billion Hit on Financials – Shell & ExxonMobil To Decide Their Course

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  • BP has announced exiting 19.75% stake in Rosneft.
  • In wake of Ukrainian crises, continuation of business partnership with Rosneft cannot be continued
  • Economic isolation of Russia is gaining momentum
  • Russian economy is dependent on Oil & Gas and there will be pressure on other western fossil fuel companies to severe their relations from Russia

CEO of the UK oil giant BP, has  announced exiting BP’s shareholding in Rosneft. BP has 19.75% stake in Rosneft. BP’s nominated directors will resign from the board of Rosneft with immediate effect and BP will stop consolidating Rosneft results in its financial disclosures. BP has two nominated directors in Rosneft. CEO Bernard Looney is directors of Rosneft since 2020 and Bob Dudley since 2013.

BP’s chair Helge Lund said that attack on Ukraine is an act of aggression and will have a tragic consequence. For over 30 years BP has operated in Russia and has worked with brilliant Russian colleagues. Russia’s military action in Ukraine represents a fundamental change.

BP board has evaluated and conclude that continuation of business partnership with Rosneft (controlled by Russia) cannot be continued. BP’s board has decided that its interest in Rosneft is no longer aligned to BP’s business strategy and hence has decided to exit the shareholdings in Rosneft

CEO Bernard Looney said that he has been deeply shocked by the situation in Ukraine and has concern for everyone who has been affected. Looney reiterated that decision taken by BP’s Board to exit its interest in Rosneft is in the long-term interest of the company.

western oil companies like ExxonMobil and BP have supported Russia in becoming energy superpower in Europe by partnering in modernising its technology and expansion.

As a result of this decision, BP’s existing interest will be remeasured at Fair Value instead of existing carrying Value. As on Dec 2021, BP’s investment in Rosneft at carrying value stood at around $14 billion which will now be measured at FV and difference between both the figures will be recognised in the Financial Statement of BP. Similarly accumulated Forex loss since 2013 which stood at $11 billion and were not recognised in income statement will also be recognised. Hence the total non-cash adjustment hitting the P& L may run into billions.

After BP’s decision, ExxonMobil may also be under the pressure. ExxonMobil has significant present in Russia for more than 27 years. Through its Russian Subsidiary, Exxon Neftegas Limited, it has been operating the Sakhalin-1 project under Production Sharing Agreement with the Russian Government since June 30, 1995. ExxonMobil has 30% stake in the project and the balance is owned by the consortium partners. Consortium includes Japanese partner SODECO owning 30%, Indian Partner ONGC Videsh owning 30%, and two Rosneft affiliates owning 20%. Project employs over 1000 employees out of which 700 are Russian Nationals and operates five major sites in Russian Far East Region.  Former Exxon CEO Rex Tillerson has been awarded with Order of Friendship by Putin.

Shell has 10% stake worth approx. $1 billion in Gazprom’s Nord Stream. It  has over 27% stake in Sakhalin-2 project which is Gazprom’s offshore gas project and major global for liquefied natural gas. Other European energy companies too have investment in Russia e.g. Norway’s Equinor and France TotalEnergies

Economic isolation of Russia is gaining momentum. Germany has earlier halted Nord Stream-2.  Western Powers have announced to plug off Russia from the SWIFT messaging platform. Norway Prime Minister Jonas Gahr Stor has announced that Norway’s Sovereign wealth fund will freeze its investment in Russia and will exit the investment. Russian economy is dependent on Oil & Gas and their will be pressure on western fossil fuel companies to severe their relations from Russia.

  Bureau Galactik Views

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