BP and Shell are divesting their stakes in massive Russian oil companies because of the war in Ukraine, decisions that could result in losses worth billions of dollars.
The United Kingdom-based BP announced on Sunday that it would be exiting its 19.75% stake in Rosneft, which accounts for about half of BP’s oil and gas reserves. Shell followed Monday and said that it is exiting all its investments in Russian projects because of the Kremlin’s decision to wage war.
“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,” said BP CEO Bernard Looney.
BP, which made the decision to sever ties with Russian businesses under pressure from Downing Street, could end up suffering a massive $25 billion loss because of the move, according to Reuters.
It is unclear if the companies will attempt to sell their holdings or just abandon them completely. Because of the web of sanctions that have been imposed against Russian entities, it would likely be quite challenging for BP and Shell to find buyers interested in the sale.
A Shell spokesperson declined to comment further about the matter when contacted by the Washington Examiner.
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After BP’s decision, Rosneft said that three decades of cooperation had been ruined and blamed the company’s decision to sever ties on “unprecedented political pressure,” Russian media reported after the announcement.
Shell, also headquartered in the United Kingdom, on Monday said it would be ending all its partnerships with Russian energy company Gazprom following the start of the war. Divestments will include its 27.5% stake in the Sakhalin-II liquefied natural gas facility and its 50% stake in the Salym Petroleum Development and the Gydan energy venture.
Shell also said it will be ending all involvement in the Nord Stream 2 pipeline project. Last week, President Joe Biden readied for the resumption of sanctions on the Nord Stream 2 pipeline, lifting a security waiver on the company building the $11 billion pipeline.
“Our decision to exit is one we take with conviction,” said Shell CEO Ben van Beurden. “We cannot — and we will not — stand by. 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,” he added.
At the end of last year, Shell had about $3 billion in assets in the Russian ventures in question. In a Monday news release, the company said the divestments would affect the book value of Shell’s Russia assets and lead to impairments.
The moves by BP and Shell put pressure on other oil companies to divest from their Russian interests. For instance, Texas-based ExxonMobil has a 30% stake in a large offshore crude development in Russia, and French-based TotalEnergies SE also has financial ties in Russia.
If Exxon doesn’t divest early this week, CEO Darren Woods will undoubtedly face tough questions on Wednesday during Exxon’s annual strategy presentation to Wall Street, according to Bloomberg.
Russia has been hit with unprecedented sanctions from the U.S., Europe, and other countries in response to its invasion of Ukraine. The Russian economy was on the rocks on Monday after the Russian central bank cut off stock trading and doubled interest rates.
The ruble tumbled by about 30% from Friday to Monday, hitting an all-time low, although it later clawed back some of those losses.
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Western powers also restricted the Russian central bank from accessing a large share of its more than $600 billion in foreign currency reserves, which it would otherwise use to halt the ruble’s decline and limit inflationary pressure.
Despite the aggressive sanctions, they have partially spared the energy sector in an effort at mitigating harm to European importers of Russian energy products. Given that Russia supplies some 40% of Europe’s natural gas, the U.S. and its allies have left some exemptions on payments for purchases of certain energy products.
