BP warns more sanctions on Russia could hit business

Oil giant BP warned on Tuesday that more sanctions on Russia over the Ukraine crisis could “adversely impact” its activities, and posted a quarterly profit leap aided by its stake in Rosneft.

BP said that it had been unaffected so far by US sanctions imposed on Russia, reporting a two-thirds boost to second-quarter net profits from the equivalent figure last year.

The British energy major owns almost 20 percent of Rosneft following a 2012 deal in which it sold the Russian state oil firm its 50-percent stake in joint venture TNK-BP.

“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,” BP said.

“To date, these sanctions have had no material adverse impact … However, BP will continue to keep this under review,” the London-listed group said in a results statement.

– EU seeking new sanctions –

Later on Tuesday, the European Union is set to approve further sanctions against Russia over its role in the Ukraine crisis and the downing of Malaysia Airlines flight MH17.

Western powers, which have accused Moscow of fanning the rebellion by supplying it with weapons including the missile system allegedly used to shoot down MH17, have urged new sanctions.

“Any future erosion of our relationship with Rosneft, or the impact of further economic sanctions, could adversely impact our business and strategic objectives in Russia, the level of our income, production and reserves, our investment in Rosneft and our reputation,” BP added on Tuesday.

BP said that “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.”

This would be the case “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 … we are unable in the future to exercise significant influence over our investment in Rosneft or pursue other growth opportunities in Russia.”

On Saturday, the EU hit another 15 individuals and 18 entities — including Russia’s intelligence chiefs — with “Phase 2” asset freezes and travel bans for their role in the crisis.

Later on Tuesday, EU member states are expected to take the next step, approving sanctions in four key areas: access to capital markets, defence, dual-use goods and sensitive technologies, including in the energy sector.

– Profits surge in Q2 –

Meanwhile, BP revealed that net profits surged 65 percent in the second quarter on the back of higher oil prices.

Earnings after taxation rallied to $3.369 billion (2.508 billion euros) in the three months to June, compared with $2.042 billion a year earlier.

The group’s replacement-cost profit, the current accounting figure which excludes changes in the value of oil inventories, rose by almost a third to $3.18 billion.

Rosneft contributed $1.02 billion of the group’s replacement cost profit in the quarter compared with $218 million a year earlier, boosted partly by favourable exchange rate moves.

BP also increased its shareholder dividend to 9.75 cents a share, from 9 cents a share.

“It’s a good quarter. It’s a good solid start to the first half of the year,” said chief executive Bob Dudley in a video released alongside the results.

“The environment has been down in some ways, offset by oil prices in another. We’ve been bringing on new projects, five new upstream projects so far this year (with) two more to go by the end of the year.”

BP added that production eased six percent in the reporting period to 2.11 million barrels of oil per day.

Output was expected to fall further in the third quarter owing to seasonal maintenance in Alaska and the Gulf of Mexico.

In morning deals, the group’s share price gained 0.40 percent to 498.85 pence on London’s benchmark FTSE 100 index, which was 0.10 percent higher.

“While earnings from Rosneft surprised on the upside, BP’s core businesses generally performed well over the second quarter,” said analysts at Jefferies financial consultancy.


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