BP shares drop as investors weigh the cost of exit from Russia

BP Plc’s shares fell about 5 per cent as investors weighed the cost of its decision to exit Russia against the reputational benefits of ending the controversial alliance with Rosneft PJSC.

BP Plc’s shares fell about 5 per cent as investors weighed the cost of its decision to exit Russia against the reputational benefits of ending the controversial alliance with Rosneft PJSC. 

The London-based company warned that it could take a writedown of as much as US$25 billion as a result of quitting Russia in President Vladimir Putin’s invasion of Ukraine. Several analysts predicted a financial hit on that scale was the most likely outcome, as economic sanctions imposed by the West make it hard to find a buyer. 

Yet BP’s quick decision removes other risks, such as the reputational damage from its partnership with the Kremlin-controlled company and questions about how Russian oil and gas fits in with its pledge to pivot to clean energy. 

“Walking away at this time is obviously not ideal from a shareholder value perspective,” RBC analyst Biraj Borkhataria said in a note. “Monetizing the stake for fair value looked difficult even in more ‘normal’ times, and now, to us, it looks extremely challenging. That said, the exit from this stake ultimately removes one of the concerns with the long term investment case.”

Shares of the company dropped as much as 7.5 per cent and were 6.5 lower at 354.05 pence as of 12:43 p.m. in London. That’s a relatively modest move considering that Rosneft accounted for about a third of BP’s reported oil and gas production. 

While BP’s stake in the Kremlin-controlled oil producer had a lot of symbolism, marking the continuation of three decades of operating in the country, in some practical ways the alliance was shallower than it appeared.