BP warns investors to be braced for new sanctions against Russia
BP raised the alarm with its shareholders yesterday, warning that further international sanctions on Russia could “adversely affect” the company.
As EU governments agreed tough new sanctions against Russia’s oil, defence, financial and technology sectors, BP’s chief executive Bob Dudley said his company stood to lose valuable Russian revenues from the escalating clampdown on trade. This will be the first time that entire industries, rather than individuals and firms, have been targeted by the West.
BP derives about 15 per cent of its profits from Russia, through its 19.75 per cent stake in Rosneft, the Russian state-owned oil company. The company acquired the stake from Rosneft as part-payment for its 50 per cent holding in the troublesome TNK-BP Russian joint venture.
That deal shrunk BP’s Russian business by 60 per cent but still left the company with a large presence in the country.
Mr Dudley conceded yesterday that he was glad BP has slimmed down its Russian business – but insisted the company was right to remain in the country.
“Strategically, putting aside the events of today, I think it was a good decision to reduce our investment in Russia but retain an investment position there… we absolutely stand by strategically what we’ve done,” Mr Dudley said, pointing out that Russia is the largest oil and gas producing nation on a planet that is going to need 40 per cent more energy by 2035.
“We are very, very long-term investors. And so to draw a conclusion at a point in time about our being there it just wouldn’t be in our nature. We think really long term. History will look back over quite a bit of time here before real conclusions can be drawn,” he added.
BP views its Russian investment in Rosneft as a 30-year project, which it has only just started, Mr Dudley said.
He was speaking as BP reported a better-than-expected 34 per cent jump in its second-quarter profits to $3.64bn (£2.1bn) compared with the year-earlier period, on the back of rising production.
However, the positive results were unable to stop the company’s shares slumping by 12.6p, or 2.5 per cent, to end the day at 484.25p.
“Any future erosion of our relationship with Rosneft, or the impact of further economic sanctions, could adversely impact our business and strategic objectives in Russia, the level of our income, production and reserves, our investment in Rosneft and our reputation,” a BP spokesman warned, just before 28 national ambassadors to the EU met to agree a new round of sanctions.
BP’s so-called upstream exploration and production unit has reported a $4.7bn profit in the second quarter, up from $4.3bn a year earlier, as it benefited from a rebound in production in the Gulf of Mexico. Meanwhile, the downstream unit saw profits drop to $0.7bn from $1.0bn last year amid strong competition in refining.
The company also increased its provision for litigation relating to the Gulf of Mexico oil spill – that resulted in 11 deaths in 2010 – by $260m. This takes the cumulative pre-tax charge for the disaster to $43.0bn.
BP was not the only international company to sound the alarm about its Russian business yesterday. Jerome Stoll, a senior Renault executive, said: “We’re in a situation where it’s complicated to know what sanctions will be implemented and what their impact will be.”
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