BP’s ties with Russia endured Putin’s attacks in Syria, the annexation of Crimea, poisonings in Salisbury and support for Venezuela’s contested president Nicolás Maduro.
The assault on Ukraine, however, has finally pushed the oil and gas giant to “fundamentally rethink” the entanglement and announce plans to exit its 19.75pc stake in the state’s giant oil producer Rosneft, held since 2013 and worth as much as £6bn.
“This military action represents a fundamental change,” chairman Helge Lund said on Sunday. “It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue.”
The decision was taken at such speed that BP hadn’t worked out the next steps: who exactly would it sell to?
While Russia is the world’s second-largest oil producer by volume, giving any buyer big power, growing corporate backlash against the country increasingly limits BP’s options for a sale.
Norway’s sovereign wealth fund and its state-owned oil and gas company Equinor have also announced plans to exit Russian investments and cooperation with Rosneft, with others under pressure to follow suit.
Shell, BP’s rival, has also decided to cut its ties to Russia by exiting the Sakhalin-2 offshore gas project with state giant Gazprom, and end funding for the Nord Stream 2 gas pipeline to Germany.
BP’s decision was made days after a meeting with the Business Secretary, Kwasi Kwarteng, who expressed his deep concern over the company’s commercial interests in Russia.
Any UK, US or European company contemplating taking on the stake would likely face fierce criticism, adding to its unpalatability even for private giants such as Ineos, Sir Jim Ratcliffe’s chemicals and energy empire that has recently been buying up oil and gas assets.
Glencore, the blue-chip miner and trader, sold most of its stake in Rosneft in 2017 and would face backlash if it tried to reverse that decision, particularly as it tries to reposition itself as a greener, more ethical company. The prospect of new sanctions on Rosneft add to the potential problems for any buyer.
“Despite the stated intentions, it is not really clear whether there are any buyers for BP’s Russian stake: it may be a pathway that takes substantial time to unfold,” say Citi analysts, who slashed their valuation of the stake “to reflect the challenge of liquidity/finding a buyer.”
In reality, private or state-backed companies more friendly with Russia, such as from China or Venezuela, may pick up the stake.
Russia is deepening its energy ties with China: earlier this month Rosneft struck up a deal to supply 100m tonnes of oil to the China National Petroleum Corporation. Venezuela, where Russia already owns some oil assets, has blamed Nato and the US for the crisis in Ukraine.
Qatar’s sovereign wealth fund, the Qatar Investment Authority, already owns almost 19pc of Rosneft and last week, Putin reportedly wrote to the country’s ruler about ways to strengthen bilateral relations. Syria has also signalled its support for Russia.
“Monetising the stake for fair value looked difficult even in more ‘normal’ times, and now, to us, it looks extremely challenging,” said Biraj Borkhataria, associate director of European Research at RBC Capital Markets, in a note.
BP’s options could include selling its shares on the open market or via private placements, he said, or even “surrendering the shares to Rosneft itself” in a big financial hit for the company. It is one chief executive Bernard Looney, at least, appears prepared to take.
On Sunday, he said: “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.”
BP shares slide on potential $25bn hit from abandoning Russia
BP shares slid by more than 7pc after it said it would abandon its near 20pc stake in Rosneft immediately, ending a 30-year venture with the Russian oil giant.
The London-listed energy company’s stock suffered the biggest fall in nearly three months after revealing that ditching the 19.75pc stake would result in a financial hit of up to $25bn (£18.7bn).
The BP chief executive, Bernard Looney, was summoned to a meeting with the Business Secretary, Kwasi Kwarteng last week to explain the company’s Russian ties.
In a memo to employees, Mr Looney warned there would be “financial consequences” from the move, which a spokesman said could mean a writedown of up to $25bn.
Mr Looney also said he would resign from Rosneft’s board, along with BP’s former boss Bob Dudley.
It may prove difficult to find a buyer for the stake given the introduction of new sanctions will preclude many international buyers from involvement. However, a collapse in Russian asset prices means it may be at an attractive valuation for a deep-pocketed domestic buyer.
Biraj Borkhataria, an analyst at Royal Bank of Canada, said: “Walking away at this time is obviously not ideal from a shareholder value perspective.”
Rosneft said the move had destroyed a “successful 30-year cooperation” between the companies.
BP shares had been rising strongly this year off the back of high oil prices, with Brent crude trading above $100 a barrel for the first time since 2014 in the wake of Russia’s invasion of Ukraine last week.
The chairman, Helge Lund, said Russia’s action had created a “fundamental change”.
“It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue,” he said.
BP, which was one of the first Western oil giants to establish itself in Russia after the collapse of the Soviet Union, had defended its position in recent weeks, with Mr Looney claiming in early February that it could “avoid politics” in the country.
Norwegian energy group Equinor is also withdrawing from Russia as a result of current events. Its chief executive Anders Opedal said its position had become “untenable”.
