BP to Take $25.5 Billion Hit From Russia Exit

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Oil major falls to first-quarter loss despite souring commodity prices

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BP said it would buy back another $2.5 billion of its shares, 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 $30 billion, and Chevron said it would buy back a record $10 billion of its shares by year-end.

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Soaring commodity prices are building up 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 lackluster 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 $6.2 billion. That compared with a $4.5 billion 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 $5.7 billion.

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Active debate in the UK 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 government officials have been urging energy companies to spend large portions of their cash piles on renewable energy in the UK and elsewhere. But the political tensions are centered on immediate costs that green-energy projects don’t address: Electricity prices were soaring across Europe even before Russia invaded Ukraine, while energy companies are earning record profits as energy demand bounces back from pandemic lows.

Meanwhile, companies that have done business for decades in Russia are reckoning with costly withdrawals from the country. BP said Feb. 27 it would exit its 19.75% Rosneft stake and other joint ventures in the country, days after Russian tanks crossed into Ukraine, putting pressure on the energy giants and companies ranging from fast-food restaurant operators to makers of cosmetics, cars and drugs.

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.
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France’s TotalEnergies SE,

which has said it is curtailing but not necessarily exiting its Russian operations, last week took a $4.1 billion accounting charge on the value of its natural-gas reserves. Total cited impacts from Western sanctions targeting Russia on a massive Arctic liquefied natural gas project under development called Arctic LNG 2.

On Friday, Exxon said it took a $3.4 billion 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 Thursday, said last month it expected to book accounting charges of up to $5 billion 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 $640 million in dividends in 2021. Analysts previously expected 2022 dividends, paid twice a year, to be worth well over $1 billion. 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 that Chief Executive Bernard 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.

Write to Jenny Strasburg at [email protected]

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Credit: www.wsj.com /

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