BP warns of possible sanctions impact

The Russian oil company, in which BP has a 19.75% stake, was a major contributor to what was a strong profit for the UK player in the second quarter, as it turned in a replacement cost profit of $3.18 billion, up from $2.04 billion a year earlier.

Underlying net income from Rosneft for the quarter alone was $1 billion, with BP receiving a dividend payment from its Russian partner in July of $693 million.

Rosneft, along with compatriot independent Novatek, was recently added to the list of sanctioned companies by the US Treasury Department over the annexation of Crimea from Ukraine earlier this year. Rosneft chairman Igor Sechin had earlier been added to the list as the US and European Union look to put the squeeze on the administration of President Vladimir Putin.

Rosneft has itself recently boasted a second-quarter net profit of $4.9 billion and said it is working on a plan to minimise the effect of sanctions, vowing that operations and major projects remain on track.

BP’s results on Tuesday did not reflect any negative impact from the sanctions, but the company warned that this could change in the future if further sanctions are imposed.

“To the extent we fail to maintain a good commercial relationship with Rosneft in the future, or if as a result of our non-controlling interest in Rosneft or otherwise we are unable in the future to exercise significant influence over our investment in Rosneft or pursue other growth opportunities in Russia, our business and strategic objectives in Russia and our ability to recognise our share of Rosneft’s income, production and reserves may be adversely impacted,” the company wrote.

“If further international sanctions are imposed on Rosneft or new sanctions are imposed on Russia or other Russian individuals or entities, this could have a material adverse impact on our relationship with and investment in Rosneft, our business and strategic objectives in Russia and our financial position and results of operations.”

Shares in BP began to rise slightly in London on Tuesday morning following the result announcement, before slipping later on.

Although the supermajor’s numbers were strong, it warned that it expected lower output in the third quarter.

“Looking ahead, we expect third-quarter 2014 reported production to be lower than the second quarter, primarily reflecting planned major turnaround and seasonal maintenance activities in Alaska and the Gulf of Mexico,” it said.

“We expect the seasonal reduction to be slightly larger than we experienced in the same quarters of 2013 due to phasing of these activities.”
*Eoin O’Cinneide – Upstreamonline

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