LONDON: Oil and gas producer BP reported a sharp rise in second quarter profits but warned that further Western sanctions on Russia could harm its business there and its relationship with Russian state oil company Rosneft.
BP said that to date, the sanctions had not had a significant effect on its business in Russia, where it makes about a third of its crude oil output, but that could change. “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,” it said.
BP, by far the largest foreign investor in Russia through its 19.75 percent stake in Russian state oil company Rosneft, has repeatedly said it will stand by its investments in Russia since Moscow’s intervention in Ukraine, where pro-Russian rebels are fighting government forces in the east of the country.
But things could get harder as the European Union weighs a new set of punitive measures against Moscow in response to the downing of a Malaysian airliner in eastern Ukraine.
Additional sanctions could include financial restrictions and a ban on exports to Russia of equipment for use by oil and gas producers.
BP is not the first to make such a warning. Last week French oil services firm Technip cut margin targets for its onshore/offshore unit for this year and next, citing the possible impact of sanctions on Russia, which it said could interrupt income flows from Yamal LNG in Siberia.
For the second quarter, BP said underlying replacement cost profit rose to $3.6bn, up 36 percent from a year earlier, beating analysts’ forecast of $3.49bn.
Its share of profits from Rosneft topped $1bn in the quarter, nearly five times higher than a year earlier as a result of “favourable foreign exchange effects” with the Russian rouble. It also received an annual dividend of $690m from Rosneft in the last two weeks.
“This was another successful quarter, delivering both operational progress and robust cash flow,” said BP Chief Executive Bob Dudley, who also sits on the Rosneft board.
BP shares were up 0.5 percent at 499.3 pence at 0800 GMT in a flat European oil and gas sector.
The robust results were underpinned by good production performance from new and recently started higher-margin upstream projects, primarily in the Gulf of Mexico, as well as increased processing of heavy crude oil by the newly modernised refinery at Whiting, Indiana, in the United States.
Overall, second-quarter production fell 3 percent to 3.1 million barrels of oil equivalent a day.