The British oil company, British Petroleum (BP), decided to leave Russia by selling its stake in Rosneft, the Russian state-owned oil giant.
BP's move was sudden and grand after three decades of operating in Russia. This marks a significant step taken by Western companies in response to Putin's invasion of Ukraine.
In its official statement, BP said it would sell its 19.75% stake in Rosnesft and would raise around US$25 billion. However, the British company did not explain how it plans to disengage.
Rosneft accounts for about half of BP's oil and gas reserves and a third of its production. BP CEO Bernard Looney and former CEO Bob Dudley will also soon step down from the board of Rosneft, where they served alongside Rosneft CEO Igor Sechin, a close ally of Russian President Vladimir Putin.
"I am deeply shocked and saddened by the situation that is unfolding in Ukraine and my heart goes out to everyone affected. It has caused us to fundamentally rethink BP's position with Rosneft," said BP Chief Executive Bernard Looney. 2).
BP's move marks increasing pressure from Western governments on their companies to limit operations in Russia as they widen the net of economic sanctions against Moscow.
UK Business Secretary Kwasi Kwarteng welcomed BP's decision. "Russia's unprovoked invasion of Ukraine should serve as a warning to British businesses with commercial interests in Russia," Kwarteng said on Twitter.
Russia's News Agency reported that Rosneft blamed BP's decision for destroying 30 years of successful cooperation.
Susannah Streeter, senior investment analyst at UK retail stockbroker Hargreaves Lansdown, said it would be very difficult for BP to recover to near what Rosneft considers full value. Last week, Looney said that BP remained in its business in Russia and would comply with any Western sanctions against Moscow.
BP said its move and financial hit would have no impact on its short- and long-term financial targets in its strategy to shift from oil and gas to low-carbon fuels and renewable energy.
But Streeter at Hargreaves Lansdown said a decline of this magnitude is likely to limit the extent to which BP can continue to accelerate its transition to renewable energy.
BP held a board meeting on Friday and another meeting on Sunday in which the decision to leave Rosneft, as well as two other joint ventures BP has with Rosneft in Russia.
It required US$11 billion in non-cash foreign exchange fees upon exiting Rosneft, which BP will no longer include in its accounts. BP said it also expects non-cash costs of up to US$14 billion.
BP receives revenue from Rosneft in the form of dividends totaling approximately US$ 640 million in 2021, about 3% of its overall cash flow from operations. The company currently has about 200 employees in Russia, most of whom are local staff.
Many other Western energy companies operate in Russia, including TotalEnergies which holds a 19.4% stake in Novatek and 20% of the Yamal LNG project.
"In the current environment, any European or American company with assets in Russia should consider a similar move," Eurasia Group analyst Henning Gloystein told Reuters.
