How Much Risk Does BP Face From Russian Sanctions?

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July 29 (Bloomberg) -- Peter Hutton, director of research oil and gas at RBC, examines how Russian sanctions may impact business at BP as they hold a 20 percent stake in OAO Rosneft. He speaks with Guy Johnson on “The Pulse.”

The potential further sanctions on russia could pose to b.p. how worried do you think mr.

Dudley is?

I suspect he is extremely worried.

He has a right to be worried.

I think they are annoyed that we're having this morning an overreaction.

Let's put this in context.

The it is important but it is a couple of paragraphs in a couple of pages of a shopping list of risks to which b.p. draws investors' attention every quarter.

It is right to highlight that.

It is a risk but not every risk comes through.

On a day-to-day basis we're not seeing anything in numbers that that suggests an impact on the number of rosneft.

The results have been better than expected.

Oil companies are uses to dealing with political risks at a very high level.

Will he be unworried about this snop no.

Absolutely not.

The to us is is pretty intense in this business.

B.p. intends its production has big exposure to russia.

Russian volumes are around 25% of total prauks but actually what really counts in our view is the cash and the cash is only 3% of b.p.'s operating cash.

They have just received $690 million which is last year's dividends out of rosneft.

That was received i think this month.

It would be a year before we get the next lot.

That is $690 billion out of their total operating cash.

So 3%. i think it is one of these things, onor these areas where the numbers are less sensitive than the headlines themselves.

The reason why we beat estimates this morning, though, was that dividend, peter.

And you just wonder whether or not if rosneft were to have a funding problem, whether or not that divered would still be there.

Whether or not the cash flow story at rosneft would justify a dividend if they couldn't bridge the financing gap.

If that were to happen, would you be less inclined to invest?


at these levels we would be buying for the simple reasons that actually -- it wasn't -- it wasn't -- it wasn't due to rosneft's profitability really.

They were 2010% better overall.

There was a shortfall in rm.


what drove the result was a 10% drop in the e.p. business.

-- b.p. business.

What we think is positive is that the volumes in the rust up year-on-year.

We highlighted last quarter.

That was the first quarter where we have had year-on-year growth in u.s. liquids.

That was important.

That is a positive.

The second positive is the costs are actually quite stable.

It may be specifics relating to the quarter but also could be something that b.p. points to as potential early signs of soft some of the benefits of simplifying the benefits.

Yes, it is an issue.

I think what we have in the market today is a -- between those people looking at the underlying numbers and like them and are buying and those where the exposure to russia leaves them uncomfortable but their understanding is a little bit exaggerated because they are looking at the production volumes rather than underlying cash.


the stock trade for this discount, why is that justified?

Should it be there?

What do you think it is based on?

You highlighted some of the yause risk.

It is a 10% discount.

We have it slightly less.

We're not renowned for being overly positive in b.p. we think it does -- of a discount to those companies.

Because of the element of risk in a number of different areas and as yet, we don't have quite the same level of -- beyond 2014 but i think realistly, it is an area where it is still offering upsides to our price torkt which i think is pretty -- target which i think is pretty unchallenging.

But you would rather own -- it depends on your risk potential, doesn't it?

Major risk of the situation here?

I have russia.

A whole list of things on the table for b.p. the list is significantly shorter for other companies.

Total has risks in north africa.

Shell has risks in russia.

There are -- it is more of a binary story for b.p. it is more of an obvious story absolutely for b.p. i think the risks are always well known.

There will be a number of people who feel that i'm uncomfortable with these levels.

It is not something i really need to own.

They are missing some value.

I don't think it is something that has to be a core part of everybody's portfolio but i think there is some opportunity there.

There are other companies who are exposed to russia as well.

B.p. is the most obvious.

This text has been automatically generated. It may not be 100% accurate.


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