Major Oil Companies Lose Billions Due to Withdrawal from Russia

Leaving Russia is not easy, and many Western companies have felt this firsthand after deciding to exit the Russian market following the onset of the war. Take, for example, the fast-food chain Mcdonald’s, which is losing 50 million dollars a month due to the closure of its restaurants in Russia.

However, these losses seem like ‘peanuts’ when compared to the losses of major oil companies. The four largest oil players have collectively lost over 38 billion dollars by shutting down their Russian operations, according to Wsj.com.

BP has been the hardest hit, losing 25.5 billion in the first quarter, which included a write-off of 13.5 billion dollars for BP’s nearly 20 percent stake in Rosneft. Along with BP, losses have also been recorded by Shell, TotalEnergies, and Exxon. Interestingly, despite the loss, BP’s stock rose by five percent.

Despite the loss, BP’s results exceeded analysts’ expectations, aided by exceptional performance in oil and gas trading, as well as high demand and volatile prices.

BP commented on the situation, stating that the company will buy back 2.5 billion of its shares and has already repurchased 1.6 billion in the first quarter, asserting that these losses related to Russia do not change the company’s strategy or diminish its plans for cash distribution to investors.

Similarly, Exxon Mobil Corp. and Chevron Corp. have also decided to buy back their own shares. Exxon has tripled its share buyback program to 30 billion this year, while Chevron has also announced it will buy back a record 10 billion in shares by the end of the year.

Cash Accumulation

Rising commodity prices are leading to cash accumulation in oil companies, but some of the largest firms are not using that cash to increase production; instead, they favor increasing dividends and buybacks.

However, a debate is ongoing in the United Kingdom regarding potential so-called windfall taxes on oil and gas companies, which has led some analysts to predict that British oil giants BP and Shell PLC will limit share buybacks compared to their U.S. counterparts. British and other European government officials are urging energy companies to spend part of their money on renewable energy sources, but questions arise about the long-term viability of these green projects and the fact that the green transition cannot solve current problems, at least not immediately.

BP responded to these discussions by stating that the company will continue to invest in oil and gas production in the North Sea and will increase spending on lower-carbon energy, including offshore wind and hydrogen. They also noted that BP’s investments in the UK are expected to reach 22.6 billion by 2030.

Mass Exodus

Russia’s invasion of Ukraine has put pressure on Western companies operating there, whether they are fast-food restaurants, cosmetics manufacturers, car makers, or pharmaceutical companies. All have been compelled in some way to leave the Russian market, either due to sanctions or what we might call moral reasons. Researchers from Yale University have calculated that over 750 companies have publicly stated they are withdrawing from the Russian market.

While many companies are writing down the value of their Russian assets, others are still operating and working in the country. General Electric Co. recorded a 200 million dollar impairment charge last week and still has about 600 million dollars in assets in the country that are not related to sanctioned activities. GE suspended most of its operations in Russia in early March but stated it would continue to provide essential medical equipment and support existing power services in the region.

Others have flagged potential costs that are yet to come. For example, French Renault SA is in negotiations with Moscow to hand over its 68 percent stake in the largest Russian car manufacturer. Renault stated in March that it is evaluating options and plans to write down the value of its Russian operations, which were valued at 2.2 billion euros at the end of last year.