BP 2014 Annual Report Download - page 37

BP holds a unique position in Russia through its
19.75% share in Rosneft.
Rosneft discovery in the South Kara Sea.
BP and Rosneft
 BP’s shareholding in Rosneft allows us to benefit from a diversified set
of existing and potential projects in the Russian oil and gas sector.
 Russia has significant hydrocarbon resources and will continue to play
an important role in long-term energy supply to the global economy.
 BP believes the primary sources of value to BP shareholders from its
investment in Rosneft will be potential long-term share price
appreciation and dividend growth.
 BP is positioned to contribute to Rosneft’s strategy implementation
through collaboration on technology and best practice. We also have
the potential to undertake standalone projects with Rosneft, both in
Russia and internationally.
 We remain committed to our strategic investment in Rosneft while
complying with all relevant sanctions.
2014 summary
 US and EU sanctions were imposed on certain Russian activities,
individuals and entities, including Rosneft.
 BP received $693 million, net of withholding taxes, in July
– representing our share of Rosneft’s dividend of 12.85 Russian
roubles per share for 2013.
 Rosneft and BP signed a contract in June to supply BP with up to
12 million tons of oil products over five years. A syndicate of banks,
through a pre-export financing agreement, made a payment of
approximately $1.935 billion to Rosneft.
 Rosneft and BP signed a heads of agreement in May relating to a
long-term project for the exploration and potential development of the
Domanik formations in the Volga-Urals region of Russia.
 Rosneft and BP concluded framework agreements in May to enable
technical collaboration between the parties. Work is ongoing in a
number of areas pursuant to these agreements in both upstream and
downstream.
 Bob Dudley serves on the Rosneft board of directors, and its strategic
planning committee.
Rosneft
Upstream
Rosneft is the largest oil company in Russia and the largest publicly traded
oil company in the world based on hydrocarbon production volume.
Rosneft has a major resource base of hydrocarbons onshore and offshore,
with assets in all key hydrocarbon regions of Russia: Western Siberia,
Eastern Siberia, Timan-Pechora, Volga-Urals, North Caucasus, the
continental shelf of the Arctic Sea, and the Far East.
Rosneft participates in international exploration projects or has operations
in countries including the US, Canada, Vietnam, Venezuela, Brazil, Algeria,
United Arab Emirates, Turkmenistan and Norway.
To progress Arctic exploration, it conducted exploration drilling with
ExxonMobil in the South Kara Sea and announced a hydrocarbon discovery
in September. Exxon subsequently suspended its participation in this
project with Rosneft due to sanctions. Rosneft also began production
drilling in the Sea of Okhotsk in September 2014, and continued to grow its
gas business – increasing gas production from 38 to 57bcm as well as
advancing plans for the development of LNG export capacity.
Downstream
Rosneft is the leader of the Russian refining industry. It owns and
operates 10 refineries in Russia and also has an interest in four refineries in
Germany through its Ruhr Oel GmbH partnership with BP. It continued
implementation of the modernization programme for its Russian refineries
in 2014 to significantly upgrade and expand refining capacity.
Rosneft refinery throughput in 2014 amounted to 2,027mb/d. As at
31 December 2014, Rosneft owned and operated more than 2,500 retail
service stations, representing the largest network in Russia. This included
BP-branded sites acquired as part of the TNK-BP acquisition in 2013 which
continue to operate under the BP brand under a licence agreement with
BP. Downstream operations also include jet fuel, bunkering, bitumen and
lubricants.
Rosneft segment performance
BP’s investment in Rosneft is managed and reported as a separate
segment under IFRS. The segment result includes equity-accounted
earnings from Rosneft, representing BP’s share in Rosneft.
$ million
2014a2013b
Profit before interest and taxc d 2,076 2,053
Inventory holding (gains) losses 24 100
RC profit before interest and tax 2,100 2,153
Net charge (credit) for non-operating items (225) 45
Underlying RC profit before interest and tax 1,875 2,198
Average oil marker prices $ per barrel
Urals (Northwest Europe – CIF) 97.23 107.38
Russian domestic oil 50.40 54.97
a The operational and financial information of the Rosneft segment for 2014 is based on preliminary
operational and financial results of Rosneft for the three months ended 31 December 2014.
Actual results may differ from these amounts.
b From 21 March 2013.
c BP’s share of Rosneft’s earnings after finance costs, taxation and non-controlling interests
is included in the BP group income statement within profit before interest and taxation.
d Includes $25 million (2013 $5 million loss) of foreign exchange losses arising on the
dividend received.
Replacement cost (RC) profit before interest and tax for the segment
included a non-operating gain of $225 million, relating to Rosneft’s sale of
its interest in the Yugragazpererabotka joint venture . In addition, the result
was affected by an unfavourable duty lag effect, lower oil prices and other
items, partially offset by certain foreign exchange effects which had a
favourable impact on the result. See also Financial statements – Notes 15
and 30 for other foreign exchange effects.
Defined on page 252. BP Annual Report and Form 20-F 2014 33
Strategic report