The price action in oil giant BP (BP.) following news it plans to exit its 19.75% stake in Russian firm Rosneft was interesting on Monday.
At one point the shares were more than 7% lower as investors reacted to the likely financial hit associated with the move but they recovered to trade down a little more than 5% at 359.6p later in the morning, suggesting shareholders are relieved BP has taken this decision having already faced pressure from the UK Government on the issue.
Shell (SHEL), is down 1% at £19.80, amid speculation it’s own 27.5% stake in the Sakhalin-2 offshore gas project might come under the spotlight.
BP CEO Bernard Looney has also resigned from the board of Rosneft with immediate effect. The company spells out that exit from Rosneft will result in non-cash impairments running into the tens of billions of pounds in the company’s first quarter results, out on 3 May.
The company also says that by 2025 group earnings will be $2 billion lower than expected at $38 billion but commits to its previous guidance on future dividends and buybacks.
WHAT IS THE ROSNEFT STAKE WORTH?
The Rosneft holding currently has a carrying value of $14 billion in BP’s accounts but, with a risk the assets could be seized by Russia, the fair value on 31 March 2022 might be zero. Based on Rosneft’s current share price it would be around £4.4 billion.
Assuming BP remains in control of the destiny of the asset, it is at yet unclear how it will affect an exit, with a sale to a buyer from the Middle East or China one possibility being flagged. BP would clearly be in a difficult negotiating position given its commitment to getting rid of the Rosneft stake.
Broker Patronus Partners commented: ‘Although the Rosneft stake has long provided a boost to BP’s cash flow, it has always depressed the group’s valuation relative to the peer group.
‘Going forward, we believe the shares will now provide a “cleaner” way to gain exposure to the oil price than in the past.’
