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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