The move may make more business sense than meets the eye, investors say. Shares in BP could be a buy after falling 5% on Monday and 8% in the past month on jitters about its Russian exposure. TheEnergy Select Sector SPDR exchange-traded fund (XLE) is up 7.5% over that period. “I’m all in for BP,” says Oswald Clint, senior analyst for energy at Sanford C. Bernstein. “This is an incredible transformation story.”
BP’s loss on Rosneft sounds big. Its share of the Russian giant’s production accounted for one-third of the company’s global crude oil output, or about 1 million barrels a day. The Rosneft shares were worth three times as much two weeks ago. The write-down could reach $25 billion, several media outlets reported, citing unnamed company sources.
The actual bottom-line hit looks less dramatic, though. BP reaps about $600 million a year from Rosneft in dividends, some 5% of the conglomerate’s current free cash flow, Clint calculates. That loss is counter-weighed by a PR coup for London-based BP, albeit one that came after some public arm-twisting from the United Kingdom’s business secretary Kwasi Kwarteng.
“While there may be a significant financial cost to BP in exiting Rosneft, it is unquestionably the right thing to do,” says Andrew Millington, head of U.K equities at fund manager abrdn.
That could pay benefits in the long run as BP becomes more attractive to environmental, social and governance investors, Clint says. The company formerly excluded its 20% share of Rosneft carbon emissions from its pledge to reach “net zero” by 2050.
BP Chairman Helge Lund’s statement on Rosneft ends a saga that started in 2003, when the multinational formed Russian joint venture TNK BP. A long corporate quarrel with oligarch partners Mikhail Fridman and Viktor Vekselberg culminated in 2013, when Rosneft stepped in with a $55 billion buyout of TNK BP. BP the parent netted $12.5 billion in cash from that acquisition, plus the slice of Rosneft stock that just went up in smoke.
Shell(SHEL: U.K.) followed rival BP’s lead on Monday, saying it will quit a much smaller liquified natural gas project with state-owned Gazprom(GAZP.Russia).
The largest remaining multinational petroleum investor in Russia is France’s TotalEnergies(TTE), which owns 16% of private natural gas producer Novatek(NVTK.Russia).
Novatek’s controlling shareholder, Leonid Mikhelson, was among 96 Russian businesspeople named as potential sanctions targets by the U.S. Treasury Department in 2018. No concrete action has been taken against him.
Novatek’s foreign sales are limited to liquefied natural gas, as Gazprommaintains a monopoly on pipelines. Total’s shares have dropped 10% since Russian troops entered Ukraine last week.
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