News Column

BP at risk from Yukos ruling

July 29, 2014

By Rob Davies, Daily Mail, London

July 29--BP cannot escape the fallout of a pounds sterling 30bn ruling against Russia over its seizure and break-up of Yukos, the now defunct oil company's representatives have warned.

Large chunks of Yukos were auctioned off cheaply to Russian state energy firm Rosneft after the gunpoint arrest of major shareholder Mikhail Khodorkovsky in 2003 on charges of tax evasion.

Khodorkovsky was released last year after a decade behind bars, but had already handed his claim on Yukos shares to GML, a group comprised of former investors.

Now a Dutch court has ruled that GML is entitled to compensation of pounds sterling 30bn from the Russian government over the affair.

Moscow has vowed to challenge the decision but GML said it was entitled to begin pursuing Russian state assets in the West through local courts.

Targeted assets could include Rosneft's stake in Ruhr Oel, four German oil refineries joint owned with BP. And the British firm's 20pc stake in Rosneft, bought as part of a major partnership completed last year, means it is also exposed to any other impact on the Russian energy giant.

GML director Tim Osborne claimed that the German refineries were 'in play'.

'The tribunal was pretty clear that Rosneft was an entity of the state. It was what they used to effect the bankruptcy of Yukos. The government and the people running Rosneft are indistinguishable,' he said, pointing to the fact that Rosneft is majority state-controlled and run by President Vladimir Putin's ally Igor Sechin.

Asked whether BP was in effect the part owner of illegally seized Yukos assets, Osborne said: 'I find it difficult to draw any other conclusion.'

The Russian firm said: 'Rosneft believes that all of its purchases of former Yukos assets, and all other actions taken by it with respect to Yukos, were entirely lawful and proper applicable law.'

'Rosneft does not believe that it may be brought against any claims in accordance with the published rulings or that these rulings can have an adverse effect on its business or assets.'

But Rosneft's shares declined by 1.5pc on the back of the ruling, taking the decline in the value of BP's stake in the past month to pounds sterling 1.3bn.

The threat of being dragged into the aftermath of the Khodorkovsky affair will cast further doubt on the wisdom of BP's decision to charge headlong into the arms of the Russian bear.

The latest fall in the Rosneft share price continues a steady decline, in the midst of Russian military intervention in Ukraine that has already incurred sanctions from the US. A ban on US firms offering Rosneft financing is likely to drive up its overall cost of funding, potentially constraining its ability to spend money on dividends.

The shareholder windfall was worth some pounds sterling 270m to BP this year, and while this year's payout is unlikely to be affected, increased financial sanctions could put future dividends at risk.

The current turmoil won't affect BP's second-quarter earnings, due today, which are expected to show operating profit is up on last year's pounds sterling 3.2bn to around pounds sterling 3.3bn. Sales will be boosted by a 7pc increase in the average oil price compared to the same quarter of last year.

Investors are also seeking an update on BP's costs in the Gulf of Mexico, with the running total from the 2010 Deepwater Horizon explosion reaching pounds sterling 25bn at last count.

BP has been unsuccessful in its attempt to block ongoing compensation payments to businesses that it does not believe were affected by the spill. It was hoping to have the awards suspended while it appeals to the Supreme Court.


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Source: Daily Mail (London, England)

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