Pump attendants work at a BP station in Moscow. The oil and gas producer reported a sharp rise in second-quarter profit yesterday but warned that further Western sanctions could hurt its business in Russia and its relationship with state oil company Rosneft. Photo: Reuters

Ron Bousso London

OIL AND gas producer BP reported a sharp rise in second-quarter profit yesterday but warned that further Western sanctions on Russia could damage its business there and its relationship with state-controlled oil company Rosneft.

BP said that to date, the sanctions had not had a significant effect on its business in Russia, which contributes about a third of its crude oil output, but that could change.

“If further international sanctions are imposed on Rosneft or new sanctions are imposed on Russia or other Russian individuals or entities, this could have a material adverse impact on our relationship with and investment in Rosneft, our business and strategic objectives in Russia and our financial position and results of operations,” it said.

BP, by far the largest foreign investor in Russia through its 19.75 percent stake in Rosneft, has repeatedly said it would stand by its investments in the country since Moscow’s intervention in Ukraine, where pro-Russian rebels are fighting government forces in the east of the country.

But things could get harder as the EU weighs a new set of punitive measures against Moscow in response to the downing of a Malaysian airliner in eastern Ukraine. Additional sanctions could include financial restrictions and a ban on exports to Russia of equipment for use by oil and gas producers.

BP is not the first to make such a warning. Last week French oil services firm Technip cut margin targets for its onshore-offshore unit for this year and next, citing the possible impact of sanctions on Russia, which it said could interrupt income flows from the Yamal liquefied natural gas project in Siberia.

For the second quarter, BP said underlying replacement cost profit rose to $3.6 billion (R38bn), up 36 percent from a year earlier, beating analysts’ forecasts of $3.49bn.

Its share of profit from Rosneft topped $1bn in the quarter, nearly five times higher than a year earlier as a result of “favourable foreign exchange effects” as the rouble fell. It also received an annual dividend of $690 million from Rosneft in the past two weeks.

“This was another successful quarter, delivering both operational progress and robust cash flow,” said BP chief executive Bob Dudley, who also sits on the Rosneft board.

BP shares initially rose but were down 1.5 percent by 1.20pm in London, in a flat European oil and gas sector.

The robust results were underpinned by a good production performance from new higher-margin upstream projects, primarily in the Gulf of Mexico, as well as increased processing of heavy crude oil by the modernised refinery at Whiting, Indiana, in the US.

“The company’s core competency operating offshore again came to the forefront with production being especially strong in the Gulf of Mexico,” said Brian Youngberg, the senior energy analyst at investment firm Edward Jones. “Higher crude prices also helped against pretty low market expectations.”

Overall, second-quarter production fell 3 percent to 3.1 million barrels of oil equivalent a day as BP increased its divestments with the sale of its Hugoton gas assets in Texas.

BP’s upstream segment reported $4.7bn underlying pre-tax replacement cost profit, compared with $4.3bn a year earlier. – Reuters