Oil giant BP is to exit its shareholding in state-owned Russian oil company Rosneft, in which it has held a 19.8% stake since 2013, while both BP-nominated directors will resign from the board of Rosneft immediately.
BP said the resignations of its CEO Bernard Looney and former BP group CEO Bob Dudley from the Rosneft board will require it to change its accounting treatment of its Rosneft shareholding, resulting in "a material non-cash charge with its first quarter 2022 results, to be reported in May".
Looney was nominated to the Rosneft board in 2020, while Dudley has been a director since 2013.
Given that BP will no longer fit the criteria under the International Financial Reporting Standards (IFRS) for having "significant influence" over Rosneft, it is now treating the Russian company "as a financial asset measured at fair value".
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According to BP, this means that a "non-cash adjusting item charge at the time of the first quarter 2022 results, representing the difference between the fair value of BP's Rosneft shareholding at 31 March 2022 and the carrying value of the asset" will apply, which at the end of 2021 was around $14bn.
The second change to BP's reporting and finances is "a non-cash adjusting item charge, principally arising from foreign exchange losses accumulated since 2013 that under IFRS were previously recorded directly in equity rather than the income statement", totalling $11bn at the end of last year.
In addition, BP will no longer report reserves, production or profit for Rosneft.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that estimates suggest BP's decision to extricate itself from Rosneft could cost it up to $25bn.
"The decision to exit the Rosneft stake will be an eye wateringly expensive one for BP, but the shocked board clearly felt they had no option but to pay the high price and distance the business from Russia's aggression," Streeter said.
"It marks a huge shift in position for CEO Bernard Looney who just two weeks ago indicated that the Rosneft slice remained a core part of BP's operations, and shows the extent to which corporate Britain is now under pressure to make very stark choices faced with the sharply escalating situation."
Helge Lund, chair of BP, said: "Russia's attack on Ukraine is an act of aggression which is having tragic consequences across the region. BP has operated in Russia for over 30 years, working with brilliant Russian colleagues.
"However, this military action represents a fundamental change. It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue. We can no longer support BP representatives holding a role on the Rosneft board."
Lund added: "The Rosneft holding is no longer aligned with BP's business and strategy and it is now the board's decision to exit BP's shareholding in Rosneft. The BP board believes these decisions are in the best long-term interests of all our shareholders."
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Looney said that he has been "deeply shocked and saddened by the situation unfolding in Ukraine", and that it had "caused us to fundamentally rethink BP's position with Rosneft".
"Our immediate priority is caring for our great people in the region and we will do our utmost to support them. We are also looking at how BP can support the wider humanitarian effort," he added.
BP confirmed it has removed Rosneft dividend payments from its "financial frame" and that it will also exit its other businesses with Rosneft within Russia.
