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BP announces Rosneft exit but it could be slow sale

UPDATED: Shell joins Russia selloff a day after BP announces Rosneft "exit"
BP announces Rosneft exit but it could be slow sale
  • Energy giant will sell 19.75 per cent in Russian state-owned oil company Rosneft following invasion of Ukraine
  • Stake will likely go for a discount, according to analysts 

BP (BP) will sell off its lucrative 19.75 per cent stake in Russian state-controlled oil company Rosneft in response to last week's invasion of Ukraine. It has been a major contributor to earnings since 2013, when the arrangement replaced the difficult joint venture TNK-BP. 

Both current chief executive Bernard Looney and former BP boss Bob Dudley have resigned from the Rosneft board.

Chair Helge Lund said the violence against Ukraine represented a "fundamental change" in Russian government behaviour: "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. 

Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng, who called Looney in for a meeting on Friday, welcomed the sale. "Russia’s unprovoked invasion of Ukraine must be a wake up call for British businesses with commercial interests in Putin’s Russia," he said. 

The international response to the invasion ramped up over the weekend, with some Russian banks now blocked from using the Swift transfer system and the US limiting the central bank's access to international reserves. The Norwegian wealth fund also said it would sell off Russian assets. 

BP's share price was down 7 per cent in morning trading in London. 

Rosneft's absence will be felt on the income statement. Last year, as the company benefited from much higher oil and gas prices, Rosneft contributed $2.4bn (£1.78bn) in replacement cost profit before interest and tax (BP's preferred measure), around 17 per cent of the total. 

Jefferies analyst Giacomo Romeo said a private sale was more likely but this would come at a "material discount". Existing Rosneft shareholders include the Qatar Investment Authority, which has a similar stake to BP, while the company also has strong ties to staunch Russia supporter China through supply agreements. RBC Capital Markets analyst Biraj Borkhataria said any sale would be "extremely challenging", although was positive on the move overall, saying it would remove a bear point from the long-term investment case. 

For now, BP will reclassify the Rosneft stake as a non-continuing asset and take a $14bn non-cash impairment, while a further $11bn in write-offs as foreign exchange losses are shifted from equity to the income statement. 

On top of the Rosneft board resignations, Looney has quit a trustee role at the Russian Geographical Society, which is chaired by Vladimir Putin. He said he was "deeply shocked and saddened" by the situation in Ukraine. Sell at 353p. 

Update Monday 6pm: Shell (SHEL) has joined the Russia selloff. A day after BP announced the Rosneft sale, Shell's board decided to "end its involvement" in the Nord Stream 2 pipeline and exit the Sakhalin-II liquefied natural gas (LNG) facility, in which it has a 27.5 per cent stake, and its 50 cent stakes in the Salym and Gydan projects. 

Chief executive Ben van Beurden said Russia's "military aggression " threatened European security and promised to work with governments on the "detailed business implications, including the importance of secure energy supplies to Europe". Shell did not give an estimate of impairments like BP has done, but put the carrying value of the holdings at $3bn.