First BP, now Shell. The rush to disinvest from Russia is impressively quick since it’s possible to imagine an alternative script in which the oil companies’ boards tried to buy time by issuing woolly “all options are open” statements. A definitive statement to sell its 20% stake in Rosneft (in BP’s case) and ditch all partnerships with Gazprom (Shell’s position) leaves no ambiguity. There can be no going back.
The mechanics of the exit are yet to be determined, and BP’s route to disentanglement is probably simpler. The company has had a wild ride in Russia over the years (one minute it was fighting local oligarchs, the next it was in partnership with them), but since 2013 it has been reduced to the role of dividend-collecting passive investor in Rosneft.
So it can either seek a buyer or accept whatever token sum of devalued roubles that the Russian company cares to offer. The latter looks more likely.
Shell, by contrast, is an active participant in the Sakhalin-2 project that produces about 4% of the world’s LNG and is crucial to Russia’s efforts to develop Asian markets. The joint-venture structure, where Gazprom is the 50% owner, will be harder to dissolve, but, at this point, the intention to exit is what matters.
As significant is Shell’s scrapping of a five-year “strategic cooperation agreement” with Gazprom that was signed only last year. That cosy working relationship with Russia’s biggest energy company could not possibly continue. The same goes for the now-ditched involvement in the Nord Stream 2 pipeline.
The hit to BP’s share price on Monday was a modest 4% by the close of trading. The message in that movement is that BP can easily afford to say goodbye to its stream of Rosneft dividends for zero compensation.
BP had received about $650m (£480m) annually from Rosneft in recent years and could have been looking at $1bn with oil at $100-plus a barrel. They are large numbers in themselves but consider the context: BP’s operating cashflow was $23.6bn in 2021.
The fall in BP’s share price, one can speculate, would have been greater if the board had risked serious reputational damage and tried to ignore the UK government’s entreaties.
Oil is always a political business, and there’s no point pretending otherwise. For Shell, the financial impairments should be slighter: the company said it had about $3bn of non-current assets in Russia at the end of 2021, which hardly dents the wider investment case.
The Norwegian energy group Equinor has also said it will exit its Russian partnerships, and the French group TotalEnergies will surely follow. These are all public companies that operate in the public spotlight.
For the next round of disinvestment, western governments should lean on privately owned western trading companies that are also important players in the Russian energy industry. They are harder to pressure, but they also matter if the disinvestment process is to have bite.
Does Haleon herald halcyon days for investors?
GlaxoSmithKline could have safely shelved its long-planned big presentation to the City of its Panadol-to-Sensodyne consumer products division: most of the main financial details were aired in January in response to Unilever’s brief but entertaining £50bn takeover offer for the unit.
It was, for an example, a non-revelation that Haleon, as the division has been named, expects to achieve 4-6% organic sales growth over “the medium term”. Nobody will be fundamentally rethinking their valuation thesis as a result of a new show of corporate confidence in the numbers.
The same applies to the confirmation that GSK will take a dividend of more than £7bn before a demerger in July. That was almost exactly as predicted.
The only mini-surprise is that Pfizer, the US joint venture partner in Haleon, intends to retain its stake, which will emerge at 32% after GSK’s pre-separation dividend shuffle. GSK, by contrast, intends to “monetise” its rump 20% holding, which translates as flogging a few shares at timely moments.
Pfizer’s stance is slightly odd because its shareholders are quite capable of buying shares directly in an independent Haleon if they wish. But nobody at GSK will be grumbling: having a long-term major shareholder with two board seats ought to be mildly valuation-supportive.
Come back in July to see how close Haleon gets to the value implied by Unilever’s offer. But the arrival in the FTSE 100 of a large UK-based consumer goods giant with reliable cashflows is very welcome. As index investors are learning to their cost, the UK’s blue-chip index is absurdly overpopulated with Russian mining companies.
