As ‘the West’ threatens to cut off Russia’s economic arteries amid rising geopolitical tension it is not clear what the impact will be upon BP PLC (LSE:BP.), which has material exposure due to its shareholding in Russia’s third-largest petroleum company.
BP owns nearly 20% of Rosneft (AIM:ROSN) which has a secondary listing in London, which may possibly be frozen depending upon what measures are put in place by western governments.
Rosneft’s London quote sees the Russian oiler down more than 7% in Monday morning’s trade, to change hands at US$6.46 per share. BP, meanwhile, is down just 0.78% at 388.34p.
In the fourth quarter of 2021, Rosneft contributed some US$555mln to BP’s US$4.32bn profit (RC) and US$2.42bn of the full year US$14.42bn group profit.
BP was paid US$464mln of dividends from Rosneft during the fourth quarter, as the Russian firm paid shareholders some 18.03 roubles per share equating to 50% of its first half net profit.
How they are connected
“BP is the largest private shareholder of Rosneft with a share of 19.75%, as well as the leading British investor in the Russian economy with a total investment of US$18bn,” Rosneft highlighted in a statement two months ago.
Rosneft has supplied BP with 30 million tons of oil and petroleum products in the period since 2018, the Russian firm noted, with the company adding that Rosneft Deutschland continues to supply petroleum products to BP's filling network in Germany, as well as the main fuels for sale in the German market.
The Russian group’s statement containing the above stats marked the 20-year anniversary of the strategic co-operation between the companies, it also detailed a strategic partnership in the field of carbon management.
It also highlighted that Rosneft and BP were working on the possibility of creating a joint venture to develop infrastructure for refuelling vehicles with natural gas in the Russian Federation, and, they were identifying opportunities to improve the reduction of greenhouse gas emissions.
BP has two appointees to the Rosneft board, one of which is chief executive Bernard Looney.
Along with the shareholding in Rosneft, BP is also partnered with the Russian company in joint ventures – retaining a 20% stake in a 100,000 barrels per day operation in eastern Siberia, 49% of a major gas development and exploration in western Siberia.
BP’s history in Russia
1990 – BP opens an office in Moscow
1996 – Opens first BP branded retail station was opened in 1996, it subsequently grows to 122 sites by today.
1997 – Invests in Sidanco, Russia’s fourth-largest oiler at that time, to acquire 10% and increases up to 25% by 2002.
1998 – partners with Rosneft to explore in Sakhalin which proves to be non-commercial project.
2006 – BP buys shares in Rosneft’s IPO, to own 1.25% of the company.
2003 – BP merges Russian interests with TNK to create BP-TNK venture which subsequently becomes Russia’s third-largest vertically integrated energy company. By 2012, it has yielded US$55bn of net profit and has grown production volumes by 40% over nine years. Some US$19bn of net dividends ae returned to BP in the period.
2012 – BP puts stake in TNK-BP up for sale before a deal is agreed with Rosneft. During this period BP acquires some portion of Russian state’s stake in Rosneft, as the deal to divest TNK-BP vehicle is announced.
2013 – Receives US$12.5bn sale proceeds in cash, plus 18.25% stake in Rosneft, taking total shareholding to 19.75%.
Present – BP retains shareholding in Rosneft along with partnerships in joint ventures. Receiving income via dividends and through JV project interests.