BP’s holding in Rosneft and the falling price of oil are set to lose the British company millions.
On Monday, BP lost more ground in share price seeing its July 2014 highs of 526 trimmed further and losing 5.2% on one day, falling from 406.95 to 387.63.
The balance sheets of oil companies such as BP and Royal Dutch Shell are robust enough to withstand the low oil prices and both companies have said that payouts will not be affected. Market data firm Markit however, warned that they will not be able to sustain this optimism for a lengthy time.
Ryan Bransfield, head of dividend research at Markit, told CNBC on Monday, “The risk is that given that these companies in the oil and gas sector account for 15 percent of the total payout, if the oil price remains low for a sustained period, this could become a risk and investors could find themselves skating on thin ice next (fiscal) year.”
BP is not only feeling the pain of oil prices being at their lowest for 5.5 years, falling below the $50 mark on Monday, but the company is also taking a hit from its holdings in Russia’s state-owned oil conglomerate, Rosneft, which saw share prices crash over December, falling from 239.60 to 181.95 in one month. Recently, Rosneft was thrown a lifeline to refinance its foreign debt. Rather than interrupt revenue-dependent oil production developments, the Russian central bank accepted Rosneft bonds held by commercial banks as collateral for loans, allowing Rosneft to issue 625 billion rubles. According to analysts, it is this deal that set off the Mid-December crash when the ruble fell against the dollar to 63.37 followed by the close of trade on the ruble.
BP’s involvement with the ailing Rosneft is a 19.75 per cent shareholding, and against the backdrop of the failing ruble currently giving the USDRUB a level of 54.43, BP are preparing their fourth quarter results. BP Q3 results in October 2014 announced profits for the first nine months of $9,897 million compared with $10,619 million for the same period the previous year. City analysts predict losses this quarter of $750 million, as reported by FT.
MT4 chart: BP
MT4 chart: Rosneft
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