Energy giant BP took a $US25.5bn pretax accounting charge related to its decision to exit its Russia holdings, including its stake in government-controlled oil producer Rosneft, by far the biggest financial hit tallied by companies pulling back from the country after its invasion of Ukraine.
The London-based company said on Tuesday that the charge dragged it into a $US20.4bn headline loss for the first quarter despite soaring commodity prices that poured cash into major oil companies’ coffers.
The loss included a $US13.5bn writedown of BP’s nearly 20 per cent stake in Rosneft that reflected its carrying value as of February 27.
Apart from the Russia-linked charges, which had been previously flagged, BP’s results beat analysts’ expectations, helped by what the company called “exceptional” results in oil-and-gas trading.
Higher and more volatile prices, together with robust demand, have boosted results for companies that buy and sell commodities globally.
The company said it would buy back another $US2.5bn of its shares, in addition to $US1.6bn in buybacks it made during the first quarter, and that the Russia-related losses don’t change the company’s strategy or cut into its plans to distribute cash to investors.
That follows moves by Exxon Mobil Corp. and Chevron Corp. last week to increase shareholder returns amid strong quarterly profits.
Exxon tripled its share-buyback program this year to $US30bn, and Chevron said it would buy back a record $US10bn of its shares by year-end.
Soaring commodity prices are leading to piles of cash on major oil companies’ books.
But some of the biggest companies aren’t using most of that cash to increase production.
After years of lacklustre returns, they are favoring dividend and buyback increases.
BP said that without the one-time charges, its first-quarter underlying replacement-cost profit, a metric similar to net income that US oil companies report, was $US6.2bn.
That compared with a $US4.5bn average projection of 26 analysts compiled by BP.
The results followed a 2021 full-year profit that was BP’s strongest in nearly a decade and a swing back from a 2020 loss of almost $US5.7bn.
The company said it would continue to reduce debt and maintain its full-year capital-spending plans at $US14bn-$US15bn, including $US2.9bn in capital expenditures in the first quarter.
Active debate in the U.K. about potential so-called windfall taxes on oil-and-gas companies had led some analysts to predict British oil giants BP and Shell PLC would constrain share buybacks relative to US peers.
UK and other European government officials have been urging energy companies to spend large portions of their cash piles on renewable energy in the UK and elsewhere.
Electricity prices were soaring across Europe even before Russia invaded Ukraine, while energy companies have been earning record profits as energy demand bounces back from pandemic lows.
Reflecting the political pressures facing cash-laden energy companies, BP on Tuesday emphasised its role as a UK taxpayer and said it would dedicate a greater share of its overall spending close to home than it historically has.
Alongside earnings, the company said it would continue to invest in oil-and-gas production in the North Sea, and increase spending on lower-carbon energy including offshore wind, hydrogen and electric-vehicle charging.
BP said its UK energy investments could reach $US22.6bn by 2030.
BP also said it would continue to share profits with investors.
“We make more money at higher oil prices, and we use that to reward pensioners,” BP chief executive Bernard Looney said.
Mr Looney said BP could shift some short-term investments “around the margin” to oil-and-gas production in the North Sea and the US to help meet acute energy needs.
“These are things that become probably more attractive in today’s world,” he said.
Meanwhile, companies that have done business for decades in Russia are reckoning with costly withdrawals from the country.
BP said on February 27 it would exit its 19.75 per cent Rosneft stake and other joint ventures in the country, days after Russian tanks crossed into Ukraine. It hasn’t said how or when it plans to divest the assets.
The invasion has put pressure on companies ranging from fast-food restaurant operators to makers of cosmetics, cars and drugs to cut ties with Russia, while sanctions have complicated operations in the country.
More than 750 companies have said publicly they would cut back operations in Russia beyond the minimum changes required by international sanctions, according to researchers at Yale University.
Now the price tags of divorcing from Russia, in many cases ending collaboration decades in the making, are becoming clearer as companies report their first quarterly earnings since the invasion.
Energy giants have reported the largest costs.
France’s TotalEnergies SE, which has said it is curtailing but not necessarily exiting its Russian operations, last week took a $US4.1bn accounting charge on the value of its natural-gas reserves.
On Friday, Exxon said it took a $US3.4bn accounting charge after it decided to halt operations at its Sakhalin Island development in Russia’s Far East.
Shell, which is scheduled to report earnings on Thursday, said last month it expected to book accounting charges of up to $US5bn in the first quarter related to its decision to exit its Russia operations, including joint ventures with energy giant Gazprom PJSC.
BP was the most exposed of oil-and-gas majors to Russia, according to analysts.
Its Rosneft stake brought it $US640m in dividends in 2021.
Analysts previously expected 2022 dividends, paid twice a year, to be worth well over $US1bn.
The company’s Russia presence goes back 30 years, and the BP-Rosneft strategic partnership dates back more than two decades.
BP’s February decision to exit Russia meant Mr Looney and former CEO Bob Dudley immediately resigned from Rosneft’s board, on which both represented BP.
BP previously relied on Rosneft for roughly one-third of its oil-and-gas production, but didn’t contribute capital to Rosneft.
Asked whether he can envision BP ever returning to doing business in Russia, Mr Looney reiterated the company’s exit plans, adding, “We have made our intentions incredibly clear.”
With Thomas Gryta.
-The Wall Street Journal
Extracted from The Australian