Here’s How Much Major Energy Companies Are Losing By Exiting Russia

Major oil and gas companies, which scrambled to abandon operations in Russia following the invasion of Ukraine in late February, are now warning that doing so will result in billions of dollars of losses.

Shell disclosed Thursday that its suspension of operations in Russia could lead it to book as much as a $5 billion loss in its approaching quarterly earnings.

Like many other major energy companies, Shell closed its operations in Russia following President Vladimir Putin’s invasion of Ukraine in late February, exiting joint ventures with Russian state-owned gas company Gazprom and ending its involvement in the Nord Stream 2 natural-gas pipeline project.

Shell rival BP, which is exiting a nearly 20% stake in Russian oil producer Rosneft, has warned that potential losses could amount to as much as $25 billion.

American energy giant Exxon Mobil also ceased operations in Russia, abandoning holdings estimated to be worth around $4 billion at the end of 2021, while Norwegian oil and gas giant Equinor, meanwhile, is leaving some $1.2 billion in Russian investments on the table.

Wall Street analysts and investors are still assessing the impact of Western companies cutting ties with Russia under heavy sanctions, with President Joe Biden set to sign a ban on Russian energy, which was passed by the Senate on Thursday.

But in the short run those losses will be cushioned by high oil and gas prices, with the resurgent sector becoming a new favorite of legendary investor Warren Buffett and his investing conglomerate, Berkshire Hathaway.

The S&P 500 energy sector has surged nearly 40% this year, far outperforming the broader benchmark index, which is down roughly 6% in 2022. Shares of BP are up more than 11% this year, with Shell rising 26%, ExxonMobil 37% and Equinor 46%.

Major energy companies will provide more details on potential losses from exiting Russia in quarterly earnings reports next month. Despite the impact of lost business there, most are expecting to report strong first-quarter earnings, in large part thanks to surging oil and gas prices.

Russia’s invasion of Ukraine has slammed energy markets, causing the price of oil to surge to as much as $130 per barrel last month, though they have since moderated somewhat. After weeks of volatile trading, the price of U.S. benchmark West Texas Intermediate now sits at $98 per barrel, while global benchmark Brent crude is trading at around $103 per barrel.

Sergei Klebnikov

I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaires and their

Source: Here’s How Much Major Energy Companies Are Losing By Exiting Russia

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Competitor BP will sell its 19.75% stake in Rosneft, which it has held since 2013. Its Russian assets totaled about $14 billion last year.

“The decisions we have taken as a board are not only the right thing to do, but are also in the long-term interests of BP,” said chief executive Bernard Looney. He and former BP executive Bob Dudley resigned their seats from Rosneft’s board Sunday. The company said it could be charged as much as $25 billion for ending its Russian investments.

“Russia’s attack on Ukraine is an act of aggression which is having tragic consequences across the region. BP has operated in Russia for over 30 years, working with brilliant Russian colleagues,” chairman Helge Lund said in a statement. “However, this military action represents a fundamental change. It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue.”

The British government pressured both firms to cut ties with Russia. Shell recently relocated from the Netherlands to London.

“There is now a strong moral imperative on British companies to isolate Russia,” tweeted Kwasi Kwarteng, Britain’s business and energy secretary. He said he called van Beurden and supported Shell’s decision.

Western energy companies flocked to Russia after the fall of the Soviet Union. In 2020, it was the world’s third-largest oil producer, behind the United States and Saudi Arabia. Its 10.5 million barrels per day accounts for 11% of the world’s oil production.