bp to exit 19.75% stake in Rosneft amid Russia-Ukraine conflict, Bernard Looney and Bob Dudley to resign from board too

28 Feb 2022 , 02:30 PM

London-based and one of the supermajors of oil and gas in the world, bp has decided to exit its stake held in Russian integrated energy company, Rosneft. The board of bp has approved for offloading its 19.75% shareholding in the Rosneft. Furthermore, bp chief executive officer Bernard Looney is resigning from the board of Rosneft with immediate effect. The other Rosneft director nominated by bp, former bp group chief executive Bob Dudley, is similarly resigning from the board.

These resignations will require bp to change its accounting treatment of its Rosneft shareholding and, as a result, it expects to report a material non-cash charge with its first-quarter 2022 results, to be reported in May.

The decision to exit Rosneft comes after Russia launched a full-blown invasion of Ukraine through air, land and sea.

bp chair Helge Lund said: “Russia’s attack on Ukraine is an act of aggression which is having tragic consequences across the region. bp has operated in Russia for over 30 years, working with brilliant Russian colleagues. However, this military action represents 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.”

The bp chair added, “We can no longer support bp representatives holding a role on the Rosneft board. The Rosneft holding is no longer aligned with bp’s business and strategy and it is now the board’s decision to exit bp’s shareholding in Rosneft. The bp board believes these decisions are in the best long-term interests of all our shareholders.”

Also, bp chief executive officer Bernard Looney added: “Like so many, I have been deeply shocked and saddened by the situation unfolding in Ukraine and my heart goes out to everyone affected. It has caused us to fundamentally rethink bp’s position with Rosneft. 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. Our immediate priority is caring for our great people in the region and we will do our utmost to support them. We are also looking at how bp can support the wider humanitarian effort.”

Bernard Looney has been a director of Rosneft as one of two bp-nominated directors since 2020. Bob Dudley has been a director of Rosneft since 2013.

Additionally, bp will also exit its other businesses with Rosneft within Russia. bp will continue to comply with all relevant international trade rules and sanctions. It continues to keep this situation under review.

The exit from Rosneft will bring in change to both the companies’ financial books. According to bp, the resignations of bp’s nominated directors, bp has determined that it no longer meets the criteria set out under International Financial Reporting Standards (IFRS) for having “significant influence” over Rosneft. bp will therefore no longer equity account for its interest in Rosneft, treating it now as a financial asset measured at fair value. 

bp outlined that such will result in two material changes to bp’s financial reporting and finances in the results for the first quarter of 2022.

Firstly, it is expected to give rise to a non-cash adjusting item charge at the time of the first quarter 2022 results, representing the difference between the fair value of bp’s Rosneft shareholding at 31 March 2022 and the carrying value of the asset. At the end of 2021, this carrying value stood at around $14 billion. 

Secondly, the change is expected to result in non-cash adjusting item charges, principally arising from foreign exchange losses accumulated since 2013 that under IFRS were previously recorded directly in equity rather than the income statement. At the end of 2021, these totalled around $11 billion, and this adjustment will not impact equity. 

That said, the exit could cost up to $25 billion.

bp will no longer report Rosneft as a separate segment from the first quarter 2022 results. As a result of the accounting changes, and excluding Rosneft from the base year and future periods, bp now expects:

• to continue, as before, to deliver a 7-9% EBITDA per share CAGR between 2H19/1H20 through 2025 at oil prices of $50-60 per barrel (2020 real) based on bp’s planning assumptions;
• EBITDA from resilient hydrocarbons and group to be around $2 billion lower in 2025, at around $31 billion and $38 billion respectively.

It needs to be noted that, bp’s priority within its financial frame is a resilient dividend. At around $60 per barrel and subject to the board’s discretion each quarter, bp expects to have the capacity for an annual increase in the dividend per ordinary share of around 4% through 2025. Also, the company is committed to maintaining a strong investment-grade credit rating and for 2022 intends to allocate 40% of surplus cash flow to further strengthen its balance sheet. bp expects a $14-15 billion range for capital expenditure in 2022, rising to $14-16 billion between 2023-5.

For the current year (2022), and subject to maintaining a strong investment-grade credit rating, bp is committed to using 60% of surplus cash flow for share buybacks. At around $60 per barrel, bp expects to be able to deliver share buybacks of around $4.0 billion a year on average through 2025.