Bernard Looney, the boss of BP, was summoned by Whitehall within a day of Russia invading Ukraine. The FTSE 100 company’s relationship with Russia had survived the annexation of Crimea in 2014 as well as the poisoning of the Skripals on British soil in 2018.
But with Russia launching the largest armed conflict in Europe since the Second World War, then business secretary Kwasi Kwarteng left Looney in “no doubt” about the concern it was now causing in Whitehall.
Looney knew he had to act. That Sunday, February 25, BP said it would exit the 19.75pc stake it had held in state oil giant Rosneft since 2013. It was the first among several major Western oil and gas companies to announce they would quit Russia in outrage over its violence, reversing a rush towards its vast fossil fuel reserves that had been seen after the fall of the Iron Curtain.
Yet seven months later, the exit is turning into a long goodbye. With Russia curbing asset sales, sanctions deterring bankers, and a diminishing pool of buyers willing to work with Russia, a clean break is hard to make.
BP is yet to get rid of its stake in Rosneft and Norway’s state-owned Equinor is the only Western major producer to have fully quit the country so far. Oil executives are finding, not for the first time, that Vladimir Putin is adept at throwing obstacles in their path. Assets exited so far have often gone back to the Russian state.
“Oil majors announced their departures to great fanfare, yet seven months later, little has changed,” says Louis Wilson, senior adviser at campaign group Global Witness, which has been working with Ukrainian officials. Companies will struggle to get rid of “toxic assets” which are “fuelling war crimes”, he adds.
It wasn’t so long ago that oil and gas companies were scrambling to get into Russia, rather than out. The country is home to the world’s largest gas reserves and, as of the start of this year, was the third largest oil producer after Saudi Arabia and the US.
John Browne, BP’s chief executive between 1995 and 2007, kicked off BP’s entanglement in 1990, meeting a Russian deputy minister in Moscow months after McDonald’s opened its first restaurant there.
“It was very clear after the fall of the Berlin Wall that something was happening and we needed to be part of it,” Browne, who was a senior executive at BP at the time of the meeting, told the Financial Times this year.
His successor, Bob Dudley, was undeterred even after having to flee Russia in 2008 after falling out with oligarchs. He returned to clinch the deal in 2013 that secured BP’s 20pc stake in Rosneft, providing about a third of its oil and gas output.
Shell has had ties to Russia since 1912 after buying the Rothschild family’s interests there. More recently, its partnership with Russia’s state gas giant Gazprom has helped it access vast gas reserves in Russia’s far east.
It, too, hung on even after having to cede control of the $22bn [£19bn] Sakhalin-2 gas facility to Russia in 2006 following months of Kremlin pressure.
Shell’s boss, Ben van Beurden, met Putin in April 2014, shortly after Russia’s annexation of Crimea, to tell him they wanted to expand the project. Equinor, meanwhile, entered Russia in the 1990s and ten years ago struck a major exploration deal with Rosneft as the two Arctic powers forged closer ties.
By the start of the war, foreign companies covered about 11pc of Russia’s oil and gas production, according to James Henderson, at the Oxford Institute for Energy Studies. BP, TotalEnergies, Wintershall Dea, Shell and India’s Oil and Natural Gas Corporation were the largest.
Many hoped that the energy ties with Russia would help prevent tensions with the West due to mutual interest. That has proven a miscalculation.
Severing those ties is not proving easy. Russia put a temporary ban on foreign investors selling assets at the start of the war and last month banned investors from countries which have supported sanctions from selling assets, including oil and gas production projects, until the end of the year.
The decree came days after US oil giant Exxon Mobil said it was selling its stake in the Sakhalin-1 oil and gas project in the far east to an unnamed buyer. Exxon has since taken steps towards suing Russia unless it allows the exit. The rules add to the problems finding buyers and advisers as Russia’s pariah status grows.
“I think the climate couldn't be worse for getting out,” says one senior industry source. “It’s in the hands of geopolitics now.”
Another says, “I suspect passing back to the Russian state is the only exit. I don’t see anyone buying Russian assets right now.”
That is the route taken by Equinor, which in May transferred its main assets back to Russian state partner Rosneft. According to Reuters, Rosneft paid only one euro, although it waived Norway’s investment commitments valued at around $1bn.
Equinor completed its exit in September by quitting the Kharyaga field, which it held with other partners. The company decided its involvement in Russia was “untenable” three days after the invasion, a spokesman says.
“We immediately set up a project team to execute the exit,” he adds. “It was important to move very quickly. It was also valuable to have good relations over time with relevant authorities, to continuously ensure that we were transparent and complied with all sanctions.”
Halliburton, the US oilfield services giant, also got out, splitting off its Russian operations to a team of former Halliburton employees.
Shell’s entanglement is more complex, though it has made big strides to break free. Van Beurden announced plans to exit in February, deploring the “senseless act of military aggression”.
Talks with Indian and Chinese buyers for its stake in the Sakhalin-2 gas facility in the far east are believed to have taken place earlier this year. But Russia then seized full control of the project, forcing partners to request permission if they wanted to stay. Shell has declined, walking away.
Moscow-listed Novatek has been touted as a possible replacement. Shell sold its 411 retail fuel stations in Russia to private Russian oil giant Lukoil, in May, with no value disclosed. It has quit the board of Salym, a joint oil development venture with Gazprom Neft, but is still working on options for its stake, with its shareholder rights curtailed by Russia. It has transferred another joint venture back to Gazprom Neft.
Some have taken a more nuanced stance. TotalEnergies’ boss Patrick Pouyanne in March argued getting out would mean handing assets over to Russia. “For me it’s a question of accountability and the responsibility of the offshore stakeholders,” he said.
Under pressure from critics, in March the company said it would "gradually suspend its activities in Russia."
It has since sold its interest in the Kharyaga oil project to Russian state partner Zarubezhneft, and its 49pc interest in Siberian gas field operator Terneftegaz to Novatek on “economic terms” and with Russian state approval. As of August, it still has minority stakes in a number of non-state-owned Russian companies: Novatek, Yamal LNG, and Arctic LNG 2.
BP’s efforts are less advanced than rival Shell. It has written down its Russian assets, taking a $25bn hit, and no longer recognises the Rosneft stake in its accounts.
Its failure to divest so far, however, has been seized on by Russia, with Rosneft boss Igor Sechin highlighting BP’s entitlement to dividends and, in June, claiming its actions showed “a desire to remain an active participant”.
The company says it “continue[s] to pursue” its exit from Russia. Looney has a long road ahead.