BP told: Ditch Russian stake to save the divi

Experts say $15bn sale is crucial as FTSE 100 giant pledges action on climate

OIL giant BP faces mounting pressure to sell its $15billion (£11billion) stake in Russian energy giant Rosneft as it embarks on a major strategy overhaul to prop up its dividend payouts and tackle climate change concerns.

On Tuesday, BP is expected to reveal that profits fell by a quarter last year, from $12.7billion to $9.5billion. On the same day, chief executive Bob Dudley will step down after a decade in charge to be replaced by Bernard Looney.

A week later, the new boss – who last month launched an official Instagram account emphasising BP’s role in the ‘energy transition’ – is expected to announce one of the biggest shake-ups in the company’s 111-year history.

The details have been drawn up in secret, but are believed to centre on the transition towards a low-carbon future.

The FTSE100 giant is battling rising concern about climate change from investors such as the Church of England, which last week blacklisted BP from its £2.8 billion pension fund.

Sources said selling its 19.75 per cent stake in Rosneft was one of the most practical ways BP could keep paying dividends while turning more climate-friendly.

BP is the third highest dividend-payer in the FTSE100 – after Royal Dutch Shell and HSBC – handing out £6.3billion last year at a yield of around 6 per cent.

Biraj Borkhataria, an analyst at RBC Capital Markets, said: ‘If BP wanted to make a credible push away from oil and towards gas, divesting the Rosneft stake would be one of the obvious solutions.’

Barclays analyst Lydia Rainforth added that Rosneft ‘should have no role in the BP portfolio going forward’.

Analysts said carbon-intensive assets such as BP’s oil and gas fields in Angola and Canada could also be put up for sale.

Irene Himona, an oil analyst at Societe Generale, said: ‘BP needs to decarbonise in a way that avoids value destruction and maintains the dividend.’

Looney is expected to announce plans for broader carbon emission reduction goals and could cut costs by restructuring the company. BP’s executive pay – including Looney’s £1.3 million salary – could also be linked to emissions targets, a source said.

BP produced 3.7million barrels of oil and gas a day last year, while only a fraction of its $16billion (£12billion) capital spending – between $500 million (£380 million) and $750 million (£570 million) – went on renewables.

The British firm’s involvement in Russia dates back to the 1990s when it took a 10 per cent stake in oil company Sidanko. It later merged its assets there with three Russian companies to form TNK-BP, a 50/50 joint venture with AAR, a consortium backed by four oligarchs.

Bob Dudley ran TNK-BP from 2003, but tensions with the oligarchs escalated, forcing him to flee Russia in 2008 and run the company from a secret location. He eventually negotiated BP’s exit from TNK-BP by selling its stake to Rosneft in 2013, with BP taking a 19.75 per cent stake in Rosneft as part of the deal.

Rosneft accounted for 1.1million of the 3.7million barrels of oil and gas BP produced each day last year. Dudley will remain on the board of Rosneft when he retires from BP in March.

A former adviser to Rosneft said that if BP decides to keeps its stake in it, Looney will look for higher returns.

‘BP’s $15billion investment in Rosneft yields just 5 per cent per year,’ the source said. ‘Finally, after years of promises, BP needs to start making returns on its massive capital lockdown in this company.’

Looney, 49, has said the company needs to ‘listen hard’ to climate change concerns. ‘We need to demonstrate that we are part of the solution – that we get it,’ he added.

BP’s renewables portfolio includes a biofuels project in Brazil, around ten wind projects in the US, the BP Chargemaster electric vehicle business and a 50 per cent stake in the Lightsource BP solar venture.

BP tried to expand into renewables in the early 2000s with its Beyond Petroleum strategy under Lord Browne, but suffered heavy losses.

Areeba Hamid, from Greenpeace UK, said: ‘Bernard Looney joins BP just as the oil industry is becoming as toxic as the tobacco industry.’

Shares in BP have fallen more than 20 per cent since April last year, closing at 456.7p on Friday. In that time, the Brent crude oil price has fallen from $74 a barrel to $58. BP declined to comment.