BP Takes $25.5 Billion Hit From Russia Exit

BP BP 0.49%

PLC has incurred a $25.5 billion pre-tax accounting fee related to its decision to exit its holdings in Russia, including its stake in government-controlled oil producer Rosneft.,

ROSN 2.86%

By far the biggest financial impact has been due to companies withdrawing from the country following the invasion of Ukraine.

The London-based company said on Tuesday that the charge dragged it into a loss of $20.4 billion in the first quarter even though soaring commodity prices sent cash into the coffers of oil companies. large mine. The loss included $13.5 billion wiping out nearly 20% of BP’s stake in Rosneft, reflecting its book value as of February 27.

BP said it would buy back $2.5 billion of its stock, and the Russia-related loss did not change the company’s strategy or cut its plans to distribute cash to investors. That follows moves by Exxon Mobil Corp. and Chevron Corp. last week to boost shareholder returns amid strong quarterly earnings. Exxon has tripled its share buyback program this year to $30 billion, and Chevron said it will buy back a record $10 billion of stock by the end of the year.

Rising commodity prices are creating piles of cash on the books of major oil companies. But some of the biggest companies don’t use most of that cash to increase output. After years of lackluster returns, they’re backing dividends and increasing buybacks.

BP said that without the one-time fee, its basic replacement cost profit for the first quarter, a metric similar to the net income reported by US oil companies, was 6.2 billion. USD. That compares with the average $4.5 billion forecast by 26 analysts compiled by BP. The result is a full-year 2021 profit, BP’s highest profit in nearly a decade, and a bounce back from a 2020 loss of nearly $5.7 billion.

The heated debate in the UK over the potential for a so-called wind tax on oil and gas companies has led some analysts to predict that British oil giants BP and Shell PLC will limit their investment. repurchase mechanism relative to US peers. British government officials have urged energy companies to spend a large portion of their cash on renewable energy in the UK and elsewhere. But political tensions focus on the immediate costs green energy projects don’t address: Electricity prices have skyrocketed across Europe even before Russia’s invasion of Ukraine, while energy companies are making money. record profits as energy demand recovers from pandemic lows.

Meanwhile, companies that have been doing business for decades in Russia are counting on very expensive withdrawals from the country. BP said on February 27 it would withdraw a 19.75% stake in Rosneft and other joint ventures in the country, days after Russian tanks entered Ukraine, putting pressure on companies and energy giants. quality, from fast-food restaurant operators to cosmetics and car manufacturers. and drugs.

Now, the cost of a divorce from Russia, which in many cases ended decades of cooperation in the making, is becoming more apparent as companies report their first quarterly earnings. them since the invasion.

TotalEnergies SE of France,

said it was cutting but not necessarily leaving its operations in Russia, which last week charged an accountant $4.1 billion on the value of its natural gas reserves. Total impact cited from Western sanctions against Russia over a major Arctic liquefied natural gas project under development called Arctic LNG 2.

On Friday, Exxon said it had incurred accounting fees of $3.4 billion after it decided to halt operations at its Sakhalin Island development in Russia’s Far East.

Shell, which is expected to report earnings on Thursday, said last month it expected to book accounting fees of up to $5 billion in the first quarter related to its decision to leave. operations in Russia, including a joint venture with energy giant Gazprom PJSC.

According to analysts, BP is the company most exposed to the oil giants with Russia. Its Rosneft stake has given it $640 million in dividends in 2021. Analysts previously expected the 2022 dividend, paid twice a year, to be worth more than $1 billion. The company’s Russian presence dates back 30 years, and the BP-Rosneft strategic partnership dates back more than two decades.

BP’s decision to leave Russia in February meant that Chief Executive Officer Bernard Looney and former CEO Bob Dudley immediately resigned from the board of directors of Rosneft, both representing BP. BP was previously dependent on Rosneft for about a third of its oil and gas output, but did not contribute capital to Rosneft.

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https://www.wsj.com/articles/bp-to-take-25-5-billion-hit-from-russia-exit-11651559671?mod=pls_whats_news_us_business_f BP Takes $25.5 Billion Hit From Russia Exit

Edmund DeMarche

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