British Petroleum (NYSE:BP) stock is down 6% today after the company announced that it is exiting its stake in Russian oil giant Rosneft.
Essentially, BP said that it is is abandoning its stake in Rosneft after 30 years due to Russia’s invasion of Ukraine. Energy analysts say it represents the most significant move yet by a Western company to punish Russia.
However, the move is a costly one for BP. Rosneft makes up about half of the company’s oil and gas reserves, and as much as a third of its production. Divesting its 19.75% stake will result in charges of as much as $25 billion.
What Happened With BP Stock
BP is joining a growing list of corporations that are severing ties with Russia in the wake of its invasion of Ukraine. BP’s decision is particularly significant as the London-based company is the largest direct foreign investor in Russia.
“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,” CEO Bernard Looney said in the news release.
Why It Matters
While investors in BP stock are reacting to its decision, others are looking at other oil and gas companies with operations in Russia to make similar choices. This includes Shell (NYSE:SHEL), which has been drawing attention for its own stake in Gazprom.
Its move also highlights the growing pressure being exerted on corporations by governments and citizens to put put public interest ahead of profits and to stop doing business with Russia. British Business, Energy and Industrial Strategy Secretary Kwasi Kwarteng welcomed the decision by BP to divest its stake in Rosneft.
I welcome BP’s decision to exit its shareholding in Rosneft oil company.
Russia’s unprovoked invasion of Ukraine must be a wake up call for British businesses with commercial interests in Putin’s Russia.
— Kwasi Kwarteng (@KwasiKwarteng) February 27, 2022
As investors consider the divestiture, BP stock is down on higher-than-average trading volume. However, the company said this decision will not affect its financial targets or its broader pivot to renewable energy. It will require the company to take on an $11 billion foreign exchange, non-cash charge. It may also face a second non-cash charge of up to $14 billion.
In 2021, BP received revenue of approximately $640 million from Rosneft. This revenue came in the form of dividend payments and accounted for 3% of its total cash flow.
What’s Next for BP
BP stock is taking a hit today on news of its decision to exit Rosneft. However, the company’s stock has been performing well so far in 2021 as prices for crude oil spike above $100 a barrel for the first time since 2014. In the last six months, BP’s share price has gained 23%.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
