British Petroleum (bp) announced today that the company will exit its 19.75% in the capital equity of Rosneft and both bp-nominated directors to resign from Rosneft board with immediate effect.
bp will also exit its other businesses with Rosneft within Russia. This includes an interest in three joint ventures with a carrying value of around $1.4Bn at year-end 2021.
bp’s oficial communication does not refer to TNK-BP business as a whole.
The British multinational assures that it will continue to comply with all relevant international trade rules and sanctions. The company says that it continues to keep this situation under review.
Joint ventures and another agreements and fields for collaboration
The first joint venture is the Taas-Yuryakh JV in Eastern Siberia in which bp owsns a 20% equity stake, and which is currently producing more than 70,000 bbls/day. The deal to acquire the stake in Taas was completed in November 2015. The production was expected to reach 100,000 bbls/day by 2021.
The second joint venture is Yermak Neftegaz LLC, formed in 2016, which is conducting onshore exploration in the West Siberian and Yenisey-Khatanga basins. BP owns a 49% stake in Neftegaz.
The third joint project is the JV for the Kharampur project, in which bp has a 49% interest.
Besides all the capital equity stakes in Rosneft and the JV with the Russian multinational, In 2017 at the 21st St Petersburg International Economic Forum Rosneft and BP announced Strategic Gas Partnership.
The oficial communication published by BP today says nothing on the technical and technological collaboration with Rosneft, where the two companies can learn from each other or jointly develop new technologies. In this collaboration frame thereare currently projects on health, safety and environmental issues in order to share best practice. In September 2016 at the Eastern Economic Forum (EEF) in Vladivostok Rosneft, BP and Schlumberger announced agreements for collaboration to develop innovative cableless onshore seismic acquisition technology.
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.
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.
Looney is separately resigning from the Board of Trustees of the Russian Geographical Society.
Not a sale but a change in accounting
The British multinational does not refer to a sale, but about a change in accounting for the Rosneft assets and reserves and points that bp will no longer report reserves, production or profit for Rosneft. As bp now is exiting its interest in Rosneft, it has removed Rosneft dividend payments from its financial frame.
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. 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.”
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.”
No change in EBIDA but EBITDA expected to be 2Bn lower in 2025
As a result of the accounting changes, and excluding Rosneft from base year and future periods, bp now expects:
a) to continue, as before, to deliver a 7-9% EBIDA per share CAGR between 2H19/1H20 through 2025 at oil prices of $50-60 per barrel (2020 real) based on bp’s planning assumptions;
b) EBITDA from resilient hydrocarbons and group to be around $2Bn lower in 2025, at around $31Bn and $38Bn respectively.
Operating in Russia for 30 years
BP first opened its representative office in Moscow in 1990.
First BP branded retail station started operating in 1996 in Moscow. Currently BP branded retail network consists of 122 retail sites in Moscow and Moscow region, in Saint Petersburg and Pskov, in Tver, Smolensk, and Novgorod regions and is operated by Rosneft under license agreement with BP.
In 1997, BP purchased a 10% stake in Sidanco, then Russia’s 4th largest oil company. The stake was subsequently increased to 25% plus one share in 2002.
In 1998 bp formed an alliance with Rosneft to explore for oil and gas in Sakhalin. Not found enough commercial reserves which would have allowed to proceed to the next stage of development, bp decided to leave the project.
In 2006 bp took strategic decision to participate in the Rosneft IPO (initial public offering), investing $1bn in Rosneft and becoming a 1.25% shareholder of the company.
In 2003, bp merged its interests in Russia with those of TNK to create TNK-BP, a successful joint venture employing around 50,000 people and operating in nearly all of Russia’s major hydrocarbon regions.
TNK-BP went on to become Russia’s third biggest vertically integrated oil and gas company, generating more than $55 Bn of net profit in 2003 – 2012. TNK-BP’s production rose by over 40% in nine years and proved SEC reserves grew by more than 30% from end 2003 to end 2012. Over the history of TNK-BP, the joint venture generated around $19 Bn of net dividends for BP’s shareholders, while paying more than $190 Bn in taxes and duties to the Russian Federation.