The prospects of BP monetising fair value from its stake in Russia's state-controlled oil giant Rosneft look bleak, according to analysts who follow the company. Its best bet may be a private sale, perhaps to a Chinese or Middle Eastern investor, assuming it can find a willing buyer and secure Moscow's approval.
BP announced on 27 February that it would exit its 19.75pc shareholding in Rosneft, as a result of Russia's attack on Ukraine. By early afternoon today UK time, its shares had dropped by 6.5pc on the news.
BP has been a Rosneft shareholder since 2013, following the resolution of a dispute with the Russian shareholders in the TNK-BP joint venture, and the stake accounts for around half of its proven oil and gas reserves. One consequence of the Rosneft exit will be the loss of dividends paid to BP by the Russian company. BP received $640mn last year and, thanks to higher oil prices, analysts had been pencilling in dividend payments of $1.8bn for this year.
"Monetising the stake for fair value looked difficult even in more ‘normal' times, and now, to us, it looks extremely challenging," said analysts at Royal Bank of Canada. Others said BP might not receive any proceeds at all, due to the escalating sanctions against Russia and the targeting of Russian access to the Swift international payments system.
One avenue for BP to extract some value from its Rosneft stake might be a private sale. Analysts at Jefferies reckon this is likely "but would probably require a material discount". The sale of the stake to a non-western buyer could suit both BP and Russia, which might prefer a strategic investor in Rosneft over a domestic investor, according to another analyst who wished to remain anonymous. "Maybe China, maybe India… and it's interesting to see that the Middle East has been a bit less willing to outrightly condemn, or get involved in the condemnation of Russia. So, there's possibly something there that would work," he said.
BP is not the only big European energy company severing ties in Russia. Norway's Equinor has also announced that it will exit its joint ventures there, although its exposure is not on the same scale. Russia accounts for around 25,000 b/d of oil equivalent of Equinor's production
Shell and TotalEnergies have so far refused to comment on any plans they might have to divest Russian assets. Shell has a 27.5pc interest in the Sakhalin-2 oil and gas project in Russia's far east, while TotalEnergies owns 19.4pc of Russian gas producer Novatek along with 20pc and 10pc stakes in Novatek's Yamal LNG and Arctic LNG 2 developments.
Jefferies noted last week that Russia is expected to account for some 16pc of TotalEnergies' production this year. The bank also said that 22pc of Austrian company OMV's output is set to come from Russian assets in 2022.
