BP BP 0.49%
PLC took a $25.5 billion pre-tax accounting charge related to its decision to exit its holdings in Russia, including its stake in government-controlled oil producer Rosneft.,
by far the biggest financial hit recorded by companies that withdrew from the country after the invasion of Ukraine.
The London-based company said on Tuesday the charge dragged it to an overall loss of $20.4 billion in the first quarter, despite soaring commodity prices that poured cash into the coffers of major oil companies. The loss included a $13.5 billion writedown of BP’s nearly 20% stake in Rosneft that reflected its book value as of February 27.
BP said it would buy back another $2.5 billion of its shares and that the Russia-related losses did not change the company’s strategy or affect its plans to distribute cash to investors. That follows moves by Exxon Mobil Corp. and Chevron Corp. last week to boost shareholder returns amid strong quarterly earnings. Exxon tripled its share buyback program this year to $30 billion, and Chevron said it would buy back a record $10 billion of its shares by the end of the year.
Soaring commodity prices are piling up mounds of cash on the books of major oil companies. But some of the biggest companies aren’t using most of that cash to ramp up production. After years of lackluster returns, they are favoring dividend increases and buybacks.
BP said that without the one-time charges, its first-quarter underlying replacement cost profit, a metric similar to net income reported by US oil companies, was $6.2 billion. That compares with an average forecast of $4.5 billion from 26 analysts compiled by BP. The results followed a 2021 profit for the full year that was BP’s strongest in nearly a decade and a reversal of a 2020 loss of nearly $5.7 billion.
Active debate in the UK over possible windfall taxes on oil and gas companies had led some analysts to predict that British oil giants BP and Shell PLC would limit share buybacks relative to their US peers. UK government officials have been urging energy companies to spend a large chunk of their stash of cash on renewable energy in the UK and elsewhere. But political tensions center on the immediate costs that green energy projects fail to address: Electricity prices soared across Europe even before Russia invaded Ukraine, while energy companies are making record profits as energy demand recovers from pandemic lows.
Meanwhile, companies that have done business for decades in Russia face costly withdrawals from the country. BP said on February 27 it would abandon its 19.75% stake in Rosneft and other joint ventures in the country, days after Russian tanks rolled into Ukraine, putting pressure on energy giants and companies ranging from restaurant operators from fast food to cosmetic and automobile manufacturers. and drugs
Now the price of divorcing Russia, in many cases ending decades of collaboration, is becoming clearer as companies report their first quarterly earnings since the invasion.
TotalEnergies SE of France,
which has said it is cutting but not necessarily exiting its Russian operations, last week took a $4.1 billion accounting charge on the value of its natural gas reserves. Total cited impacts of Western sanctions targeting Russia on a massive Arctic liquefied natural gas project under development called Arctic LNG 2.
On Friday, Exxon said it took a $3.4 billion accounting charge after it decided to halt operations at its Sakhalin Island development in Russia’s Far East.
Shell, which is scheduled to report earnings on Thursday, said last month it expected to book accounting charges of up to $5 billion in the first quarter related to its decision to exit its Russian operations, including joint ventures with energy giant Gazprom PJSC. .
BP was the most exposed of the oil and gas majors to Russia, according to analysts. His stake in Rosneft brought him $640 million in dividends in 2021. Analysts had previously expected the 2022 dividends, paid twice a year, to be worth more than $1 billion. The company’s presence in Russia dates back 30 years, and the BP-Rosneft strategic partnership dates back more than two decades.
BP’s February decision to leave Russia meant that CEO Bernard Looney and former CEO Bob Dudley immediately resigned from the Rosneft board, on which they both represented BP. Previously, BP relied on Rosneft for about a third of its oil and gas production, but did not provide capital to Rosneft.
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