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BP quits Russia in up to $25B hit after Ukraine invasion
- g42gregory 5y agoMy understanding that Russian Central Bank just announced capital controls, - foreigners are not able to sell any Russian securities. BP won’t be able to sell? I think China has done similar capital controls before.
- consumer451 5y ago> I think China has done similar capital controls before. This is an opportune time to realize our folly therein.
- dev-3892 5y agoin what direction does money flow as a result of this? I'm kind of an idiot when it comes to finance, and to my uninformed eyes, this looks to me like a $25bln gain for Rosneft. Is that the case?
- selectodude 5y agoNowhere, they just abandoned the stake and gave the shares back to Rosneft. BP already paid somebody $25bn for the stake years ago and they are writing down the value of that stake to zero.
- SahAssar 5y agoDidn't Rosneft then gain whatever those shares are worth now? I get that they lost a strategic partnership, but the immediate effect is a gain for Rosneft, no?
- ComputerGuru 5y agoYes, it’s basically a free buyback (reverse effect of stock split/dilution).
- spaetzleesser 5y agoThat seems really weird. why give them a free gift? I suspect there must be more to this.
- gambiting 5y agoThe gift is worth nothing or actually worse, BP pulling out reduces the value of all of their other shares too.
- Tenoke 5y agoSurely (if that's really the case) just selling on the market and crashing the price would've hurt them even more. I'd normally expect that'd also make BP at least a bit of money but I have no idea about the complex accounting and tax situation when doing it this way. Either way, at minimum it's a gift of not crashing the price.
- VBprogrammer 5y agoIn theory perhaps but it's a pretty damning indictment of their near term prospects so I would be surprised if they gain anything when the dust settles.
- SahAssar 5y agoIn terms of market cap, sure. But isn't part of owning a significant chunk of a company some voting power too? If the end goal of sanctions is to influence behavior then isn't it weird to give up voting power in a business in the sanctioned country? I'm by no means knowledgeable about this stuff, so please correct me if I'm wrong.
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- senko 5y agoWher did you read that? I don't see that anywhere in BP statement. What the statement says is they're removing themselves from the board (so can't be considered to having any control over Rosneft), and readjusting the shares value. To me this reads as they're going to be a passive investor in Rosneft (and possibly sell the shares as quickly as possible), not that they're gifting them to Putin. Statement here: https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-to-exit-rosneft-shareholding.html https://www.bp.com/en/global/corporate/news-and-insights/pre...
- selectodude 5y ago"The change in accounting treatment also means that bp will no longer recognise a share in Rosneft’s net income, production and reserves" If they were still a passive investor, they would still get a slice of revenue. They're totally divesting.
- mxschumacher 5y agothat does not mean that they are selling their Rosneft shares to Rosneft
- selectodude 5y agoThey're not selling their shares to anybody. They're abandoning them. Rosneft, for obvious reasons, owns all the shares that aren't owned by anybody else so Rosneft gets control the shares back.
- mxschumacher 5y agothere is simply no information available on what will happen to the shares, so your insistence is irritating. If the shares were dissolved, the other owners (such as the Russian government) would end up with a larger stake. If a sale is taking place, the question is: to whom and for how much (Rosneft shares have been under fire on Thursday and Friday, along with all the other Russian stocks)
- Jyaif 5y agoI believe so. Rosneft being state-own, this looks like a 25 billion gift to Russia. There must be something that I don't understand.
- rlpb 5y agoIn accounting terms, you might consider the stake to have been bought for 25 billion at the time, but now it's being considered worthless (or maybe even a liability) by BP, so something of no (dollar) value is being given to Russia. The loss in value might be considered to have occurred as a result of recent events. Edit: note that I have no idea of the value myself. I'm just saying that if you were to accept BP's view, then they're not necessarily giving Russia a gift of any kind.
- simonh 5y agoBP still owns the shares, and on the future this could still give them a claim against Rosneft so this is not a gift to anyone.
- ivan_gammel 5y agoIt would be such a gift at current share price. But Rosneft will probably become much cheaper. 1. Their current production capacity in Russia will decline, since they won’t be able to receive new equipment and spare parts. 2. Their exports capacity may be reduced if more sanctions will come. 3. Their cashflow will be heavily impacted by sanctions. They may not be able to receive money or spend them on domestic market (eg pay salaries). 4. Their foreign investments may be frozen or they may be forced to sell.
- FastMonkey 5y agoRosneft is a publicly traded company. When you "exit" a position, that usually means you sell the shares onto the market. Public shares are traded on a secondary market, so if they do that some other investors would be buying them. I haven't looked into this story that deeply, but I think it's unlikely that they would be striking a good deal with Rosneft to sell them directly back to the company. Rosneft may decide to buy the shares back from the market itself. Edit: looking at the BP disclosure, they've decided to make the accounting changes that show they're going to sell the stake, they'll likely be looking for a smart way to offload the shares, probably to some large buyer (not just pressing sell on some brokerage account). Edit 2: the $25B figure isn't really that accurate. Before this all kicked off, Rosneft had a market cap of around $70B,and BP held about 20%, or $14B. The article sums BP's carrying value for the company ($14B, coincidentally I think), and an accumulated foreign exchange loss of $11B, which had already been charged to equity. The current market cap of Rosneft is about $30B,so the actual hit to BP sharebolders will be something like $8B if they could sell at current prices.
- lottin 5y agoSo were does the loss come from exactly? Were the shares that BP held not marked to market already?
- lazide 5y agoIn accounting terms, if they already recognized the asset at x value, or paid x amount for it, any amount less than x is considered a loss. Depending on what goes on here market wise before they can exit their ownership stake (if they haven’t already!) is what will decide how big a loss this is.
- FastMonkey 5y agoIt's like a loss you would make if you bought a stock for $20 and sold it for $18. Someone else buys it for $18 and it might go up or down from there. Rosneft got their money back when they initially sold the stock to the market. I think BP is a UK company and I'm not that familiar with the specifics of their accounting system. In the disclosure they say they considered that they had "significant influence" which is an IFRS accounting term. That would mean (as simply as I can explain it) that the initial purchase is recorded at cost with their share of Rosnefts profits and dividends recorded against that holding (along with a large bundle of other accounting details).
- MrPatan 5y agoDidn't they just said they couldn't sell it (who'd buy?) and they just taking it "off the books" and will just stop claiming the money from the dividends? So now Rosneft gets to keep more money? They did a stock buyback for free? That'll learn'em!
- fairity 5y agoIt sounds like BP will be selling their stake to another party. So, BP will receive cash from the other party in exchange for shares in Rosneft. Whether the sale is a smart move for BP ultimately depends on two things: 1) the sale price 2) the expected future cash flows from their stake if they didn't sell. My guess is that this will be a highly negative EV trade for BP because: 1) they're unloading a huge stake which will result in a depressed share price due to supply/demand imbalance AND 2) share price is probably already undervalued due to the fearful climate.
- jka 5y ago"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," BP Chief Executive Bernard Looney said. Narrowing in on the words "fundamentally rethink": I suppose that could indicate that BP did not anticipate this series of events unfolding, and that this decision to retreat was not planned in advance?
- asplake 5y agoBP was already (Friday) under some political pressure: https://www.bbc.co.uk/news/business-60526891 https://www.bbc.co.uk/news/business-60526891
- jfengel 5y agoAn awful lot of people never expected it to get this far. They expected it to be a threat to achieve concessions. The actual attack forces a very broad reconceptualization of how Russia intends to relate to the rest of the world. It is much more hostile than their previous incursions, because this was someone the West considered an ally and possibly even a NATO member. This is incredibly dangerous in a way nobody expected them to risk.
- prewett 5y agoI think people paper over the dark side of human nature. Sometimes people do bad things not out of ignorance, but out of a desire to do bad things. It seemed pretty obvious to me that Putin was going to invade: you don't mass 200,000 troops on the border and start making justifying noises if you aren't planning on invading. Putin followed the pre-invasion script of pretty much every invasion in the past couple of hundred years that I'm aware of.
- ip26 5y agoI doubt many desire to do bad things, but rather desire the spoils of bad things & find ways to self-justify.
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- xanaxagoras 5y agoIs it crazy to think that someone is reimbursing them for this loss, like Western governments perhaps? Or maybe its some kind of opportunity cost calculation at the behest of some ESG man behind the curtain? Not the be too conspiratorial, but I'm trying to make sense of walking away from that kind of money, assuming of course that this is complete and utter bullshit: > "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," BP Chief Executive Bernard Looney said.
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- beejiu 5y agoThis follows political pressure in the past few days. "BP left the meeting with no doubt about the strength of the Business Secretary’s concern about their commercial interests in Russia." (https://www.energyvoice.com/oilandgas/europe/390852/bp-ceo-rosneft-uk-business-secretary/ https://www.energyvoice.com/oilandgas/europe/390852/bp-ceo-r... That obviously a bit cryptic, but I don't think this decision is purely altruistic on BP's part.
- trhway 5y agoimagine in 1945 looking at the pull out of investments in 1939 from Germany.
- rich_sasha 5y agoThey are probably selling at a heavy discount. Ie making a loss.
- Dwolb 5y agoReduction in net income at least, but I don’t know their finances well enough to know if it’s useful.
- crate_barre 5y agoIt’s not crazy to think that. 25bn can be recompensed in alternate contracts by the West. Like hey BP, you are first in line for Shale operations we’re reopening. Biden is a hard ass about Russia, and Putin knows it.
- tobyhede 5y agoBP is probably just getting ahead of the game. The value of this investment is likely to be predicted to plummet and need to be written off anyway. The EU will need to dramatically reduce energy dependence on Russia after this. There will no popular support and the long term strategic implications make it untenable.
- TedShiller 5y agoThe financially correct way to do it would be to wait for it to plummet first before writing it off. So no, you don't want to get "ahead of the game" in the accounting sense.
- UnlockedSecrets 5y agoWhat are the effects of doing it now versus later?
- TedShiller 5y agoThe lower the asset drops, the more you can write off when you do it. So it’s best to wait until the asset is the lowest that you think it will go. Of course you could mistime it
- baq 5y agobut it has already happened. show me (or them) a bidder. no one in their right mind would buy a russian asset after what happened a few hours ago and likely what will happen in retaliation.
- CPLX 5y agoI’ve read this a few times and as far as I can tell there’s no substantive change in ownership planned. It appears to be something done entirely as a paper transaction like a journal entry. They are going to write off the investment on the books and no longer recognize the associated pass through revenue and so on. But as far as I can tell they aren’t going to do anything. It’s all an adjustment to financial statements. If someone more experienced with this kind of public company jargon speak wants to come in and correct me then great but that’s sure what it seems like is happening. I think it’s literally just an internal accounting adjustment.
- FastMonkey 5y agoThey've made the accounting changes that show they may sell. Instead of telling investors "we are holding a significant portion of rosneft and intend to hold it for the foreseeable future", they will now be saying "we hold shares of Rosneft that are worth $X on the market, and we will sell them if we think we will get a reasonable price".
- rvba 5y agoThis journal entry means a nice tax loss for years to come - so no corporate income tax to be paid?
- AniseAbyss 5y agoWhen you're too insane to deal with even for oil companies...
- rossdavidh 5y agoYeesh, good point.
- chevman 5y agoThe Russian market is going to zero Monday morning so get out while you still can! Going to be an interesting week :)
- kristianp 5y agohttps://archive.is/g6uKc https://archive.is/g6uKc
- narrator 5y agoWar is bad for business, or is it? There is some deep irony here. The Russian nationalists just kicked out foreign ownership of their oil sector and they didn't even have to deprive anyone of their property rights. The foreigners gave up their stake on their own initiative.
- stjohnswarts 5y agoIt depends on what business you're in my friend, the military-industrial-political complex is certainly watching this with a smile and wiping their greedy little hands together in anticipation.
- swarnie 5y agoCan confirm, Putin has basically guaranteed my annual bonus for the next decade. Speak to your local politician and ensure those F-35 orders keep coming in please and thank you.
- thr0wawayf00 5y agoYeah, but they've also been cut off from the global payments system, there are reports of bank runs currently underway, and the Ruble is down 30% against the USD last I saw. Full ownership of the energy company isn't going to mean that much to the Kremlin when they can't transact internationally and the Ruble crashes and people take to the streets.
- stjohnswarts 5y agoYou got to salute them for this. While they'll get to write it off as a loss they still will be paying a lot for this. "Write offs" aren't cheap like a lot of the internet seems to think.
- stjohnswarts 5y ago
- olliej 5y agoMeanwhile Apple, Facebook, Google, Microsoft, Visa, Mastercard, ... all continue to do business with them. "Cool"
- kmlx 5y agocurrent sanctions do not target russia’s oil or gas outputs. germany’s nord stream 1 is still running. gas outflows from russia to the west via ukraine have increased in the past week. it will take a long time before the west is completely off russia.
- redisman 5y agoSeems like all that could be unnecessary. Europe wants to at least make it through the winter with heat. Unless their Central Bank has something brilliant lined up the Russian economy will have a heart attack within a few days.
- arbuge 5y agoI don't see how this hurts anyone except BP shareholders. It certainly doesn't hurt the Russsians in any way I can see. It seems to me that some Russian individual or organization, perhaps the Russian government itself, will now just scoop up the stake in question on the cheap (or for free), at their expense.
- woodruffw 5y agoWe're not privy to the exact reasons for BP's decision, but one plausible explanation: if their internal risk analysis indicates that their share is going to become worthless, then it makes perfect sense for them to divest from it. The shareholders take a hit, but it's a small hit compared to having that money evaporate entirely. Besides, given the soaring price of oil, I'm sure they'll find a way to make that money back. I'm not exactly worried about BP's financial security or that of its shareholders.
- bamboozled 5y agoIt's interesting how everyone quits Russia over this invasion (which is good, I agree with), yet no one quits that much over climate change, which threatens and kills people all the time. I wish more people would quit BP, which has done an insane amount of damage over time. Remember Deepwater Horizon [1] ? Hard to believe the company still exists. [1] https://en.wikipedia.org/wiki/Deepwater_Horizon_oil_spill https://en.wikipedia.org/wiki/Deepwater_Horizon_oil_spill
- labster 5y agos/interesting/a goddamn tragedy/ Humans are predisposed to react to sudden, violent events, probably for evolutionary reasons. More people will die from air pollution than in the war in Ukraine, but whatever. As long as I don’t have to buy a new electric lawnmower I guess all the death is fine.
- scrollaway 5y ago> More people will die from air pollution than in the war in Ukraine I'm as anti air pollution as they come, but the war in Ukraine threatens a lot more than the immediate loss of life. It threatens the entire stability of Europe and beyond, that is part of why the world is taking such massive action. We're a few wrong moves away from hundreds of millions of lives lost over a few years/decades, from the war and its subsequent fallout.
- hinkley 5y agoWe also apply strange modifiers to choice. We resent choices foisted upon us. We are more comfortable with adversity we volunteer for (or believe we did). We also blame people more for active choices than inactive ones. Even when we probably shouldn't.
- thr0wawayf00 5y agoIt's not that surprising. Some states have banned government officials from even using the term "climate change" in official communication[]0]. Society is still very much in conflict about whether or not climate change even exists, which isn't going to change as long as political speech prioritizes reactionary aggression over legitimate research. The Ukraine conflict OTOH has now escalated to nuclear threats, which poses an imminent risk to pretty much everybody. This is why the EU is now mobilizing after initially staying out it. 0: https://www.miamiherald.com/news/state/florida/article12983720.html https://www.miamiherald.com/news/state/florida/article129837...
- faangiq 5y agoMark down now. Mark up during bonus season …
- SMVS 5y agoOil company makes ethical decision about "war". World confused. Didn't you commission there conflicts in the first place?
- SMVS 5y agoOil company makes ethical decision about "war". World confused. Didn't you commission these conflicts in the first place?
- throwaway874653 5y agoWtf BP
- sonicggg 5y agoSomething is not adding up, how was BP able to circumvent the capital control imposed by the central bank in Russia. Foreign entities are not allowed to sell their securities : https://www.reuters.com/business/russian-cbank-orders-block-foreign-clients-bids-sell-russian-securities-document-2022-02-27/ https://www.reuters.com/business/russian-cbank-orders-block-...
- lazide 5y agoThey haven’t actually done anything yet is how.
- quantified 5y agoAnd let’s see what happens. Suppose Russia ends this thing and withdraws before they do. Then what? Bet they look for it back.
- ugh123 5y agoI'm hoping at this point that the only re-entrance back to Russia is after a major political shift "away" from Putin
- redisman 5y agoIt’s a press release. Looks indeed like they can’t sell today as the stock market is also just.. closed
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- IG_Semmelweiss 5y agoOne item forgotten in this conversation: Companies tend to write off their problem accounts (impaired assets) using external events as an excuse ("everyone is doing it mentality") Im not suggesting they had 25B in nonperforming assets, but sometimes this is a strong motivator to do spring cleaning - and quietly make problems go away, such as bad M&A deals, etc.