Oil major BP today reported a 34 per cent surge in second-quarter profits and warned that further sanctions on Russia could have a “material adverse” effect on its finances and operations in the country.
The group owns almost 20 per cent of Russian state-controlled Rosneft, the world’s largest publicly-traded oil producer, and said its investment in the firm is likely to be hit by a package of sanctions imposed on Russia by western nations yesterday in response to the conflict in Ukraine.
BP told investors: “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
Rosneft chief Igor Sechin, Russia’s former deputy prime minister, is already the subject of US sanctions, and earlier this month President Barack Obama’s administration effectively cut off the company’s ability to tap into long-term US capital markets.
Frustrated by the apparent ineffectiveness of previous sanctions and outraged by the deaths of 298 people aboard the Malaysia Airlines plane downed over eastern Ukraine, the
European Union yesterday imposed further measures that are designed to limit Russia’s access to European capital markets and halt trade in arms and sensitive technologies.
BP’s warning came as the group
reported a profit of $3.6 billion (£2.1bn) for the second quarter, up from $2.7bn a year earlier.
Chief executive Bob Dudley said: “This was another successful quarter, delivering both operational progress and robust cash flow. 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 and efficiency.”
BP also said it had set aside a further $260 million for litigation related to the 2010 Deepwater Horizon disaster, in which 11 people were killed. That took total charges for the Gulf of Mexico oil spill to $43bn. Richard Hunter, head of equities at Hargreaves Lansdown, said the “solid” trading during the second quarter “underlined BP’s status as a stock which is well on the way to recovery”. However, he warned that the remaining liabilities from the Gulf spill were not totally clear and that the company’s outlook for the current quarter was less positive, given planned maintenance activities.
Hunter added: “The real sting in the tail could come from BP’s 20 per cent stake in Rosneft, depending on the severity of any further sanctions.”
Jonathan Jackson, head of equities at Killik & Co, said the second-quarter numbers came in ahead of City hopes, helped by higher earnings from BP’s exploration and production activities.
Profits from its downstream business fell amid a “significantly weaker refining environment”, but Jackson said the group had benefited from increased processing of heavy crude at its modernised Whiting refinery in the US.
He said: “Although the potential liability for the Gulf of Mexico oil spill remains an uncertainty and the situation in Russia needs to be watched, the underlying business is now more focused and has the potential for strong growth from exploration and production.”