BP profits rise but fears over economic sanctions on Russia grow

Oil and gas giant BP reported a rise in second quarter profits on Tuesday, but has warned that further growth may be hit by proposed economic sanctions upon Russia.

BP’s underlying replacement cost profit– which accounts for changes in oil prices – reached $3.6 billion (£2.1bn) for the second quarter.

The figure is up 34% from the $2.7 billion (£1.6bn) reported for the same period in 2013 and 13% higher than the $3.2 billion (£1.9bn) result for the first quarter of 2014.

However, BP is among the biggest foreign investors in Russia. It holds around a 20% stake in the Russian state-owned oil company Rosneft.  

This investment earned BP an underlying net income of $1 billion (£590m) in the second quarter, playing a big part in the firm’s quarter-on-quarter improvement. After the end of the quarter, BP also received a $700 million (£412m) dividend payment. 

But in the wake of Russia’s involvement in the Ukraine crisis and the alleged shooting down of flight MH17, Western governments are today negotiating tough new sanctions on the Russian government.

Some sanctions have already been imposed. Earlier this month, Washington barred any individuals or companies with ties to the US from extending medium or long-term credit to Rosneft.

It is expected that new measures could include financial restrictions and a ban on technology exports to Russia.

“If further international sanctions are imposed on Rosneft or new sanctions are imposed on Russia or other Russian individuals or entities, this could have a material adverse impact on our relationship with and investment in Rosneft, our business and strategic objectives in Russia and our financial position and results of operations,” BP said. 

The firm also revealed it has set aside an additional $260 million (£153m) for litigation related to the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.

The disaster spilled five million barrels’ worth of oil and has so far cost BP around $43 billion (£25.3bn).

Photo: Guy Freeman via Flickr

Further reading:

Norway’s oil fund considers impact of sanctions against Russia

Malaysia Airlines MH17 crash: MPs slam UK government over increased Russian arms sales

Oil giant BP in 2013 profits slump

BP loses legal battle over 2010 oil spill compensation limits

BP contests Deepwater Horizon payback scheme amid fears it could run out of money