* Profits rise 36 percent on year on strong production
* Russia sanctions so far had no impact, but new measures
* BP the biggest foreign investor in Russia with Rosneft
* BP shares up 0.5 pct
(Adds detail, quotes from company, analysts)
By Ron Bousso
LONDON, July 29 Oil and gas producer BP
reported a sharp rise in second quarter profits on Tuesday but
warned that further Western sanctions on Russia could harm its
business there and its relationship with Russian state oil
BP said that to date, the sanctions had not had a
significant effect on its business in Russia, where it makes
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 Russian state oil company Rosneft,
has repeatedly said it will stand by its investments in Russia
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 European Union 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
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 Yamal LNG in Siberia.
For the second quarter, BP said underlying replacement cost
profit rose to $3.6 billion, up 36 percent from a year earlier,
beating analysts' forecast of $3.49 billion.
Its share of profits from Rosneft topped $1 billion in the
quarter, nearly five times higher than a year earlier as a
result of "favourable foreign exchange effects" with the Russian
rouble. It also received an annual dividend of $690 million from
Rosneft in the last 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 were up 0.5 percent at 499.3 pence at 0800 GMT in
a flat European oil and gas sector.
The robust results were underpinned by good production
performance from new and recently started higher-margin upstream
projects, primarily in the Gulf of Mexico, as well as increased
processing of heavy crude oil by the newly modernised refinery
at Whiting, Indiana, in the United States.
"The company's core competency operating offshore again came
to the forefront with production being especially strong in the
Gulf of Mexico. Higher crude prices also helped against pretty
low market expectations," said Brian Youngberg, senior energy
analyst at Saint Louis, Missouri-based investment firm, Edward
Jones, which maintained its 'hold' rating on BP shares.
Overall, second-quarter production fell 3 percent to 3.1
million barrels of oil equivalent a day.
BP's upstream segment reported $4.7 billion underlying
pre-tax replacement cost profit, compared with $4.3 billion a
year earlier and $4.4 billion in the first quarter of 2014.
Total operating cashflow for the first half of 2014 was
$16.1 billion, placing it in line with its goal of reaching
around $30 billion in cash flow this year.
BP maintained its quarterly dividend of 9.75 cents per
BP has also increased its divestments as part of a
sector-wide drive to reduce spending and contain rising costs
with the recent sale of its Hugoton gas assets in Texas for $390
It has sold $3.4 billion worth of assets since 2013 out of a
planned two-year total of $10 billion divestments, in addition
to around $40 billion worth of assets already sold to help pay
for the Deepwater Horizon spill in the Gulf of Mexico in 2010.
Like most of its peers, including Royal Dutch Shell
, BP is under heavy pressure from shareholders to boost
dividends and tighten its budgets as soaring costs in the oil
and gas industry and relatively stable oil prices crimp
(Adduitional reporting by Karen Rebelo in Bangalore; Editing by