Morningstar

That Was Quick: BP Exiting Rosneft Stake

Updating our model with this change, along with the latest oil and gas prices, results in a slight increase to our $30 fair value estimate.

Securities In This Article
BP PLC ADR
(BP)

On Feb. 27, BP BP announced it would be exiting its 19.75% stake in Rosneft citing the Russian state-owned enterprise is no longer aligned with BP's business and strategy. Details on the timing and method were not provided. In addition, CEO Bernard Looney and former BP CEO Bob Dudley are resigning from the Rosneft board. With the resignations, BP no longer meets the IFRS standard for "significant influence" over Rosneft meaning it will no longer equity account for its interest, instead treating it as a financial asset measured at fair value. Updating our model with this change, along with the latest oil and gas prices, results in a slight increase to our $30 fair value estimate to $31. Our GBP 380 fair value estimate is unchanged given $/GBP changes since our last update. The increase in oil prices offsets the impact of stripping Rosneft earnings from our model and replacing its market value ($3.6 billion based on 40% haircut to the Feb. 25 closing price of RBL 307.95 based on early trading in London and assuming $/RBL 107.5 as of early Feb. 28). Oil prices, the ruble and Russian equity markets remain volatile, however, and BP's valuation is likely to vary as a result until the outcome of the exit is set. That said, as our fair value increase suggests, we do not see the decision to exit Rosneft as particularly harmful to BP.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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