BP PLC share price down, posts soaring profits, Russia sanctions concerns

BP PLC, the worlds sixth-largest oil producer, posted Q2 earnings today, revealing a sharp jump in profit, while expressing concern over the looming Western sanctions for Russia, where BP is the biggest single foreign investor.

Quarterly underlying replacement cost profit was reported to have risen 34% on an annual basis to $3 635 billion, while revenue was little changed at $95.83 billion. US output was up 28% this quarter, with major highly efficient extraction upgrades in the Gulf.

“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,” Chief Executive Officer Bob Dudley said in a statement. “This was another successful quarter, delivering both operational progress and robust cash flow.”

A major contributor to BPs results was Russian state oil company OAO Rosneft, of which BP owns 19.75%. Payments from Rosneft amounted to as much as $1 billion this quarter, double the amount from Q1 and almost 5 times more than a year ago.

BP produces about a third of its crude and gas in Russia, and BP CEO Bob Dudley also sits on the board of Rosneft.

With a deteriorating political climate for Russia, however, clouds are on the horizon for the British oil giant. The EU and US are tightening sanctions on Moscow, which are set to expand and include Russian energy companies as soon as today. Already on the US list of people with asset freezes and visa bans is OAO Rosenfts head Igor Sechin.

BP has stood by its Russian investments, and even expanded them this year, but has warned of possible revenue impacts, should more sanctions be implemented.

“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 said in an earnings statement.

Furthermore, yesterday an international tribunal ordered Russia to pay $50 billion in damages to former shareholders of the Yukos oil company. Assets of Yukos were nationalized years ago, and the recipient of the bulk of those is Rosneft.

BP PLC was down 1.53% to trade at 489.25 pence at 12:32 BST, giving BP a market capitalization of £91.49 billion (about $155 billion).