bp to exit Rosneft shareholding

Source: press release, 27 February 2022

photo: bp
photo: bp

The bp board has announced that bp will exit its shareholding in Rosneft. bp has held a 19.75% shareholding in Rosneft since 2013.

Additionally, 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.

The resignations will require bp to change its accounting treatment of its Rosneft shareholding and, as a result, it expects to report a material non-cash charge with its first quarter 2022 results, to be reported in May.

bp chair Helge Lund says, “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 adds, “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.”

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.

Impact on reporting and finances
As a result of the resignations of bp’s nominated directors, bp has determined that it no longer meets the criteria set out under International Financial Reporting Standards (IFRS) for having “significant influence” over Rosneft. bp will therefore no longer equity account for its interest in Rosneft, treating it now as a financial asset measured at fair value.

This will result in two material changes to bp’s financial reporting and finances in the results for the first quarter of 2022.

First, it is expected to give rise to a non-cash adjusting item charge at the time of the first quarter 2022 results, representing the difference between the fair value of bp’s Rosneft shareholding at 31 March 2022 and the carrying value of the asset. At the end of 2021 this carrying value stood at around USD 14 billion.

Second, in addition, the change is expected to result in non-cash adjusting item charge, principally arising from foreign exchange losses accumulated since 2013 that under IFRS were previously recorded directly in equity rather than the income statement. At the end of 2021 these totalled around USD 11 billion, and this adjustment will not impact equity.

The change in accounting treatment also means that bp will no longer recognise a share in Rosneft’s net income, production and reserves [1]. bp will no longer report Rosneft as a separate segment from the first quarter 2022 results.

As a result of the accounting changes, and excluding Rosneft from base year and future periods, bp now expects:

  • 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.
  • EBITDA from resilient hydrocarbons and group to be around USD 2 billion lower in 2025, at around USD 31 billion and USD 38 billion respectively.

Financial frame and distribution guidance unchanged
As bp now is exiting its interest in Rosneft, it has removed Rosneft dividend payments from its financial frame.

However, bp remains confident in the flexibility and resilience of its financial frame, underpinned by an average 2021-25 cash balance point of around $40 per barrel [2]. This includes reaffirming the guidance regarding its expectations for shareholder distributions – dividends and buybacks – out to 2025 that was given with its 2021 full year results in February 2022. This includes:

bp’s first priority within its financial frame is a resilient dividend. At around $60 per barrel and subject to the board’s discretion each quarter [3], bp expects to have capacity for an annual increase in the dividend per ordinary share of around 4% through 2025.

bp is committed to maintaining a strong investment grade credit rating and for 2022 intends to allocate 40% of surplus cash flow to further strengthen its balance sheet.

bp expects a USD 14-15 billion range for capital expenditure in 2022, rising to USD 14-16 billion between 2023-5.

For 2022, and subject to maintaining a strong investment grade credit rating, bp is committed to using 60% of surplus cash flow for share buybacks. At around $60 per barrel bp expects to be able to deliver share buybacks of around USD 4.0 billion a year on average through 2025.

bp will also exit its other businesses with Rosneft within Russia [4].

bp will continue to comply with all relevant international trade rules and sanctions. It continues to keep this situation under review.

Notes

[1] Refer to bp’s Annual Report and Form-20-F 2020 and bp’s fourth quarter and full year 2021 financial announcement.

[2] $40 per barrel Brent oil price, and assuming an average Refining Marker Margin of around $11 and Henry Hub gas price at $3 in 2020 real terms.

[3] The board will take into account factors including the cumulative level of and outlook for surplus cash flow, the cash balance point and the maintenance of a strong investment grade credit rating in setting the dividend per ordinary share and the buyback each quarter.

[4] This includes an interest in three joint ventures with a carrying value of around USD 1.4 billion at year-end 2021.