By NIDAA BAKHSH
BP, the UK oil company with the single-biggest foreign
investment in Russia, warned that more sanctions against the
country could hurt its business.
BP, with a 20% stake in OAO Rosneft, stands to lose the most
from further sanctions in response to Russias
annexation of Crimea. The Europe
an Union and the US are
acting to intensify punitive measures aimed at key sectors of
the economy -- finance, defense and energy.
Any future erosion of our relationship with Rosneft, or
the impact of further economic sanctions, could adversely
impact our business and strategic objectives in Russia, the
level of our income, production and reserves, our investment
in Rosneft and our reputation, BP said in an earnings
BP reported a 34% increase in second-quarter profit, beating
analyst estimates, including $1 billion underlying net income
from Rosneft. That compares with $218 million from the
Russian company a year earlier. BP received a $690 million
dividend from Rosneft last week and doesnt expect this
to be at risk next year. Its stake is worth $15 billion.
To date, these sanctions have had no material adverse
impact on BP or Ruhr Oel GmbH, a joint refining
venture between BP and
Rosneft, it said. However, BP will continue to keep
this under review.
EU governments agreed Tuesday in Brussels to bar Russian
state-owned banks from selling shares or bonds in Europe
and restricted the export
of equipment to modernize the oil industry, a key prop for
Russias economy, two EU officials told reporters.
A Dutch court ruled Monday in favor of former Yukos Oil Co.
officials, ordering Russia to pay $50 billion for seizing
what was once the countrys largest oil producer. The
decision risks dragging Rosneft and natural gas exporter OAO
Gazprom into extended legal wrangling. The state-run
companies may be targeted because they were beneficiaries of
expropriated Yukos assets.
We are monitoring events in Russia, CEO Bob
Dudley, who was re-elected to the Rosneft board in June, said
at a media briefing in London. Sanctions are a matter
for governments to resolve through dialog and
Earnings adjusted for one-time items and inventory changes
rose to $3.6 billion from $2.7 billion a year earlier, the
London-based company said in the statement. That beat the
$3.4 billion average estimate of 13 analysts in a
Bloomberg News survey. The quarterly dividend was
unchanged from the previous three months at 9.75 cents/share.
While total energy production declined because of disposals,
the company brought online project
s with better returns, it
said. US output rose 28% in the quarter from a year earlier,
boosted by new assets in the Gulf of Mexico.
We are continuing to ramp up the major new projects
that drive delivery of cash flow and are also now seeing
benefits from our focus on operating with greater reliability
Dudley said in a statement. This was another successful
quarter, delivering both operational progress and robust cash
Five new projects started production this year, including
three in deepwater in the Gulf of Mexico, and the CLOV
project in Angola, which produced first oil in June. Two more
s are expected to start in
The end of BPs Abu Dhabi concession in January together
with divestments meant overall production was 6% lower at 2.1
million bpd of oil and gas. Underlying output, which strips
out these factors, was 3% higher.
Rising production from higher-margin fields and increased
processing from the newly modernized Whiting refinery
na contributed to operating
cash flow of $7.9 billion, with the total for the first half
at $16.1 billion, BP said.
These were a strong set of results, said Anish
Kapadia, an analyst at Tudor Pickering Holt & Co. in
London. It was particularly encouraging to see
increased oil production from the US as well as a good
contribution from Rosneft, putting them on track to meet the
$30 billion to $31 billion target for cash flow for the
BP said production is expected to be lower in the third
quarter compared with the previous three months because of maintenance
in Alaska and the
Gulf. The explorer has the greatest scope among the oil
majors to rein in operating costs, with potential savings of
$1.4 billion/year, according to analysts at Sanford C.
Norways Statoil last week reported a drop in profit on
lower production because of maintenance
and asset sales, while
Spains Repsol said adjusted net income was 2.7% lower
than a year earlier as unrest in North Africa curtailed
Total, Europes second-largest oil company, reports
second-quarter earnings on Wednesday, while Royal Dutch
s largest oil company,
will report on July 31.
BP raised cost estimates for the 2010 Gulf oil spill to $43
billion from $42.7 billion for legal provisions.