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BP to offload stake in Rosneft and take $25bn hit

BP The Rosneft logo is pictured on a safety helmet in Vung Tau, Vietnam April 27, 2018. Picture taken April 27, 2018. REUTERS/Maxim Shemetov
BP to divest stake in Russian state-oil company after Moscow’s invasion of Ukraine. Photo:Maxim Shemetov/Reuters

BP (BP.L) is exiting the 19.75% position in Russia oil giant Rosneft it has held since 2013 following pressure from the UK government.

The UK-listed oil group announced on Sunday that it was offloading “with immediate effect” its voting stake in Rosneft, saying that Russia’s invasion of Ukraine represented “a fundamental change” in relations with Moscow.

Rosneft accounts for almost half of BP’s oil and gas reserves and a third of its production and divesting 19.75% stake will result in charges of up to $25bn (£18.7bn), the company said.

It did not explain however, how it plans to exit Russia. It could write off the shareholding, sell it back to Rosneft or find another buyer.

Read more: Explainer: How economic sanctions work

The changes will lead to two “material non-cash” charges in its first-quarter results that could amount to as much as $15bn. This includes an $11bn charge related to foreign exchange losses and the difference at that time between the “fair value” and the “carrying value” of the stake, currently worth $14bn.

Susannah Streeter, senior investment analyst at Hargreaves Lansdown, said it will be "highly difficult" for BP "to recover anywhere near what was considered to be the full value" of Rosneft. BP is the biggest foreign investor in Russia.

Rosneft accounted for almost a fifth of BP’s $12.8bn profits for 2021 in its latest set of annual results, contributing some $2.7bn.

The move came after business secretary Kwasi Kwarteng had a virtual call with BP’s chief executive Bernard Looney for around 20 minutes on Friday to discuss the company’s position.

BP shares were down more than 5% in early trading as analysts fear the oil major will struggle to find bidders. Chart: Yahoo Finance UK
BP shares were down more than 5% in early trading as analysts fear the oil major will struggle to find bidders. Chart: Yahoo Finance UK

Looney is also resigning from Rosneft’s board along with its other Rosneft director, former CEO Bob Dudley, it said in a statement.

The statement added that Russia’s invasion of Ukraine “caused us to fundamentally rethink BP’s position with Rosneft.”

BP’s chairman, Helge Lund, said: “Russia’s attack on Ukraine is an act of aggression which is having tragic consequences across the region. BP has operated in Russia for over 30 years, working with brilliant Russian colleagues. However, this military action represents a fundamental change.

Read more: Airline stocks hit hard in wake of Russia’s invasion

“It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue. We can no longer support BP representatives holding a role on the Rosneft board. The Rosneft holding is no longer aligned with BP’s business and strategy.”

Looney added: “Like so many, I have been deeply shocked and saddened by the situation unfolding in Ukraine and my heart goes out to everyone affected.

“It has caused us to fundamentally rethink BP’s position with Rosneft.

“I am convinced that the decisions we have taken as a board are not only the right thing to do, but are also in the long-term interests of BP.”

Kwarteng said he welcomed BP’s decision, adding that Moscow’s “unprovoked invasion of Ukraine must be a wake-up call for British businesses with commercial interests in Putin’s Russia”.

Watch: BP quits Russia in up to $25bn hit