Oil giants to exit Russia amid shock about Ukraine invasion

“We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security,” said Shell’s chief executive, Ben van Beurden.

News of the decision came after BP saw its shares plunge four per cent yesterday in the wake of the company announcing that it planned to divest its stake in Russian oil giant Rosneft following the invasion of Ukraine.

The London-based company said on Sunday that it planned to divest the stake after facing pressure from the UK Government to make such a move amid global condemnation of Russia’s assault on its neighbour.

The fall in BP’s share price came on a day when the price of Brent crude rose above $100 per barrel amid concerns about potential disruption to supplies. Petrol prices reached a record of more than £1.50 per litre in the UK.

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The share price fall may have reflected concern that BP will be unable to find buyers for the stake in Rosneft.

“This won’t be a cheap decision because they probably won’t be able to sell it to anyone in the current climate,” said Michael Hewson, analyst at CMC Markets.

Mr Hewson noted that if BP is unable to sell its near 20 per cent stake in Rosneft it will have to write off the value of the holding, resulting in it taking charges totalling $25bn (£18.75bn).

Underlining he uncertainty about what the divestment move will mean, Jamie Maddock at Quilter Cheviot said: “There may be some possibilities for offloading the stake in a way that doesn’t simply hand it over to the Russian government, potentially through a sale or asset swap to an investor in China or the Middle East but it is too early to tell at this stage.”

The Russian government could seize BP’s stake in Rosneft, which accounted for around 17% of the $14.4bn profit the group made last year, before tax and finance costs.

BP chief executive Bernard Looney Picture: BP

However, the share price fall yesterday was smaller than might have been expected. The pace of the fall eased during the trading day. BP shares were down 7% in early trading.

The 4% fall wiped around £3bn off BP’s £73.9bn stock market valuation.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said the early reaction was pretty limited given the scale of the impairment charges expected. She suggested investors might feel “the reputational damage of continuing to do business with Russia could be more damaging long term”.

The relatively small share price fall could also reflect expectations that BP will benefit from increases in oil and gas prices in respect of its other operations.

Ms Steeter said BP had led the way by opening up a new channel of censure. She noted BP’s course of action was followed first by Norway’s Equinor which has announced it is divesting Russian joint operations.

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Shell’s Mr van Beurden said: “Our decision to exit is one we take with conviction. We cannot – and we will not – stand by.”

He added: “Our immediate focus is the safety of our people in Ukraine and supporting our people in Russia. In discussion with governments around the world, we will also work through the detailed business implications, including the importance of secure energy supplies to Europe and other markets, in compliance with relevant sanctions.”

Shell may have to write off the $3bn value of its investments in Russia. These include a stake in the Salym Petroleum oil fields venture in Siberia and involvement in the Nord Stream 2 pipeline, which is designed to carry gas from Russia to Germany.

First Minister Nicola Sturgeon said any oil and gas firms with interests in Russia should be looking to divest.

The difficulties BP and Shell face as a result of their hefty exposure to Russia could mean their North Sea operations assume increased importance to them.

Both have said the North Sea is a core area for their oil and gas operations.

They have said they will use the profits generated from oil and gas production to fund investment in areas such as offshore wind in support of the transition to a lower carbon energy system and big payouts to investors.

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Nathan Piper, head of oil and gas research at Investec, highlighted the potential for oil and gas prices to continue rising.

“As sanctions have yet to target the energy sector directly in Russia we see the potential for oil prices to surge further if sanctions tighten further,” said Mr Piper.

“Europe remains dependent on Russian gas with limited alternatives.”

BP and Shell have been active in Russia for some time.

BP’s chief executive Bernard Looney resigned from the Rosneft board with immediate effect on Sunday, along with former BP chief executive Bob Dudley.

In the announcement of BP’s divestment plans, Mr Looney said: “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.”

The group said that without the Rosneft stake earnings would be around $2bn lower than otherwise in 2025. However, it made clear it still expects to generate huge profits in coming years.

“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,” said the group.

BP shares closed down 14.95p at 363.55p.