BP to Exit Stake in Rosneft due to Ukraine Crisis
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BP Plc, a British oil and gas leader, announced the offloading of its 19.75% stake in Rosneft, a Russian oil and gas company
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BP CEO Bernard Looney and another BP-nominated director Bob Dudley step down from the Rosneft board. BP will have to write down up to $25 billion following the exit
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With increasing sanctions, Western energy giants with operations and investments in Russia could find it hard to sustain the same
BP to Exit Stake in Rosneft due to Ukraine Crisis
On February 27, 2022, British oil giant BP Plc announced that it would offload its 19.75% stake in the Russian state-owned company, Rosneft. As the war between Russia and Ukraine aggravated, BP was under pressure from the UK government over this massive holding.
BP carried out its operations for three decades in Russia with a significant contribution from Rosneft. Two BP-nominated directors have also quit the Rosneft board. The stake held by BP in Rosneft will cost the company a considerable revenue synergy developed during this period. The stake sale will reflect in the first quarter of 2022, with up to $25 billion in financial adjustments. Although around 3% of cash flow from operations of BP is from Rosneft, it forms a third of the oil and gas production of BP. Almost half of the oil and gas reserves crucial for BP are represented by Rosneft. Rosneft owns and operates 13 refineries in Russia and holds stakes in three refineries in Germany, India, and Belarus. BP will no longer report these reserves, production figures, or profits for Rosneft.
Challenges for Other European Oil and Gas Leaders
The European Union (EU) has started imposing sanctions on Russia, and oil and gas companies are expected to experience the aftereffects. The main reason for a sector-specific impact is that the EU receives around 40% of its gas from Russia. Germany, the largest economy in Europe, gets more than half of its gas consumed from Russia. Germany was working on Nord Stream 2, a gas pipeline from Russia to Germany to meet the country’s growing demand for gas. However, the project was suspended as Russia invaded Ukraine. If such decisions are replicated in other European oil and gas companies, the European industry leaders could face formidable challenges.
TotalEnergies – The French Oil and Gas Leader: TotalEnergies is one of the European companies with huge investments in Russia. It has a 19.4% stake in Novatek, a Russian oil and gas giant. It has a 20% share in Yamal LNG joint venture in Russia. TotalEnergies has 10% exposure in the Arctic2 venture, which is in the construction phase in Russia. Considering such vulnerabilities, any move by TotalEnergies to move away from Russia will harm the future production of oil and gas.
Shell – Dutch Oil and Gas Leader: Shell has a 27.5% interest in Sakhalin-2, Russia’s first offshore gas project. It is one of the world’s most significant integrated, export-oriented oil and gas projects, with Russian gas leader Gazprom holding a 50% stake. The project delivers liquefied natural gas (LNG) to the Asia-Pacific and North American regions. Shell is one of the co-financiers of the Nord Stream 2 pipeline project and, with its suspension, the company has already started experiencing geopolitical impacts.
Utility Leaders of Europe Feel the Impact
Oil and gas leaders and utility companies dealing in Russia have seen share prices plunge. Uniper, the German electric utility company, has substantial business in Russia. With the Russian invasion of Ukraine, Uniper shares have plummeted. Uniper is also one of the co-financiers of the now-suspended Nord Stream 2 pipeline project. French utility leader Engie has co-financed Nord Stream 2 project to increase its LNG operations. With the project suspended, Engie is closely watching the geopolitical developments.
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