BP will ditch its near 20 per cent stake in Kremlin-backed energy giant Rosneft, following Russia’s invasion of Ukraine.
Both chief executive Bernard Looney and predecessor Bob Dudley will also resign from their positions on Rosneft’s board.
The UK-based gas giant has been under intense pressure to divest from Rosneft over recent days – with Looney holding a phone call with business secretary Kwasi Kwarteng amid growing Downing Street unease at the partnership between both companies.
The company has held a highly lucrative 19.75 per cent shareholding in Rosneft since 2013 – and has operated within Russia for 30 years.
By divesting, BP will conclude its business in the country, and sever financial ties with Rosneft.
This means it will stop taking a dividend in the company, which accounts for around half of BP’s oil and gas reserves and a third of its production.
The choice is highly costly, with BP anticipating a $25bn hit from the decision, which will be factored in at the end of the first quarter – when it is reported in May.
While Looney has previously argued BP prefers to “stick to business”, he said the Kremlin’s instigation of conflict in Ukraine has caused the company to “fundamentally rethink BP’s position with Rosneft.”
BP chair Helge Lund condemned the invasion as an “act of aggression.”
He explained: “It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue. “
City A.M. understands that BP is considering all options when it comes to offloading its stake.
Kwarteng said on Twitter that he welcomed the decision and called Russia’s actions a “wake up call” for British businesses.
Russ Mould, senior investment analyst at AJ Bell told City A.M. the decision was unsurprising and reflects BP’s business savvy.
He said: “The government couldn’t force them to sell, but considering how Looney’s team has its antenna attuned to the ‘E’ in ESG, it’s not a surprise they can deal with S and G concerns too. This fits in very much with what they are trying to achieve.”
Commenting on the potential losses from the decision and shareholder response, he added: “It is possible shareholders will be prepared to accept the loss as a matter of principle. The question is who are they going to sell to? And at what price?”
Hargreaves Lansdown’s senior investment analyst Susannah Street said: “It marks a huge shift in position for Looney who just two weeks ago indicated that the Rosneft slice remained a core part of BP’s operations, and shows the extent to which corporate Britain is now under pressure to make very stark choices faced with the sharply escalating situation.”
BP recently unveiled a bumper profits and billions of dollars worth of shareholder buybacks and hefty green investment into the UK – with Rosneft contributing to the group’s stellar performance amid easing pandemic conditions.
However, politicians are increasingly putting on pressure on businesses and people to sever any potential ties with Russia.
Alongside the pressure on BP, Defence Secretary Ben Wallace has called for Lord Barker to exit his role with Anglo-Russian green energy and mining group En+ Group (EN).
The company was sanctioned by the US in 2018, and still includes Russian oligarch Oleg Deripaska as its largest shareholder, even if he has been largely frozen out over the past three years.
When approached for comment, an En+ spokesperson said: “En+ is the leading international producer of low carbon aluminium with operations and employees throughout the world. We employ several thousand people in Ukraine and the group’s senior leadership is currently doing all it can to help keep them and their families safe and protect their livelihoods.”
Deripaska has also called for peace talks in Ukraine, but stopped short of criticising the Russian government for invading the country.