BP’s CEO Dudley’s Influence Over Rosneft Investment Slips

BP Plc Chief Executive Officer Bob Dudley’s influence over the Russian oil giant that contributes almost one-third of the U.K. oil explorer’s production is slipping as U.S. sanctions bite.

As a director at OAO Rosneft, which is 19.75-percent owned by BP, Dudley is supposed to help oversee Rosneft CEO Igor Sechin. Now that Sechin has been blacklisted by the U.S. government, he’s off-limits to Dudley, the U.S. native who led BP out of the financial and legal abyss of the 2010 Deepwater Horizon explosion in the Gulf of Mexico.

Sechin, a confidant of Putin’s and an architect of his reassertion of state control over natural resources, was added to the U.S. Treasury Department’s list of “specially designated nationals” yesterday. U.S. law bars American citizens from dealing with individuals on the list, according to the Treasury website.

The U.S. sanctions list was expanded yesterday to include Sechin, six other individuals and 17 companies as the Obama administration stepped up pressure on Russia to rein in militant separatists who have deposed municipal authorities and seized buildings in eastern Ukraine. The conflict has been escalating since a pro-Russian regime was deposed by street protests in Ukraine’s capital, Kiev, on Feb. 28. For now, BP may have to consider cutting its losses on Rosneft, which has dropped 5.1 percent since the crisis erupted.

Considering Divestments

“From a legal and reputational standpoint, companies with relationships to Rosneft may need to begin considering divesting or otherwise minimizing their exposure,” Chip Poncy, a former Treasury Department official who consults on sanctions-related issues, said in an interview. “How quickly do they need to execute? We’ll have to wait and see.”

BP shares rose 2.5 percent to the highest in more than two months in London today after the company announced an 8.3 percent increase in the quarterly dividend. First-quarter earnings adjusted for one-time items and inventory changes matched the $3.2 billion average of 10 analysts’ estimates compiled by Bloomberg News.

The London-based company became the Russian oil producer’s second-largest shareholder and won a seat on the board as part of the March 2013 sale of half the TNK-BP joint venture to Rosneft. The Russian government is Rosneft’s biggest holder.

“We are still considering today’s announcement and looking at what it may mean for BP,” David Nicholas, a BP spokesman, said yesterday in a telephone interview from London. “Of course, we will comply with all relevant sanctions. But we also want to make it clear we remain committed to our investment in Russia.”

Dudley told analysts and investors during a conference call today that he intends to continue attending Rosneft board meetings. He didn’t address how he will manage direct communications or interactions with Sechin.

Tighter Noose

Rosneft fell 1.7 percent to a 10-month low yesterday in Moscow after the U.S. announced the expanded sanctions list, before rebounding today. The inclusion of Sechin, 53, indicates U.S. officials are seeking to tighten the economic noose around Putin’s inner circle to dissuade him from further incursions into Ukraine.

Russia seized Ukraine’s Crimea peninsula last month and has been massing troops on its side of the border with Ukraine.

The sanctions don’t extend to Rosneft as a corporate entity, according to a Treasury Department official who requested anonymity to provide additional details on yesterday’s announcement.

“It’s unfortunate for BP,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who rates the shares the equivalent of a buy and owns some. “Every time there is light at the end of the tunnel, the tunnel gets longer and the light gets dimmer.”

BP Output

BP’s oil and natural gas production has fallen for four straight years, dropping to the equivalent of 3.23 million barrels a day last year, the lowest since 2000, according to data compiled by Bloomberg. Almost two-thirds of BP’s output was crude in 2013.

By contrast, Rosneft’s production has been on a decade-long upswing and finished last year at the highest among all publicly traded energy companies.

There’s not a lot that BP can do about the blacklist, Gheit said. The stake in Rosneft is BP’s largest single investment.

Before it's here, it's on the Bloomberg Terminal.