Topline
Major oil and gas companies, which scrambled to abandon operations in Russia following the invasion of Ukraine in late February, are now warning that doing so will result in billions of dollars of losses.
Key Facts
Shell disclosed Thursday that its suspension of operations in Russia could lead it to book as much as a $5 billion loss in its approaching quarterly earnings.
Like many other major energy companies, Shell closed its operations in Russia following President Vladimir Putin’s invasion of Ukraine in late February, exiting joint ventures with Russian state-owned gas company Gazprom and ending its involvement in the Nord Stream 2 natural-gas pipeline project.
Shell rival BP, which is exiting a nearly 20% stake in Russian oil producer Rosneft, has warned that potential losses could amount to as much as $25 billion.
American energy giant Exxon Mobil also ceased operations in Russia, abandoning holdings estimated to be worth around $4 billion at the end of 2021, while Norwegian oil and gas giant Equinor, meanwhile, is leaving some $1.2 billion in Russian investments on the table.
Wall Street analysts and investors are still assessing the impact of Western companies cutting ties with Russia under heavy sanctions, with President Joe Biden set to sign a ban on Russian energy, which was passed by the Senate on Thursday.
But in the short run those losses will be cushioned by high oil and gas prices, with the resurgent sector becoming a new favorite of legendary investor Warren Buffett and his investing conglomerate, Berkshire Hathaway.
Surprising Fact:
The S&P 500 energy sector has surged nearly 40% this year, far outperforming the broader benchmark index, which is down roughly 6% in 2022. Shares of BP are up more than 11% this year, with Shell rising 26%, ExxonMobil 37% and Equinor 46%.
What To Watch For:
Major energy companies will provide more details on potential losses from exiting Russia in quarterly earnings reports next month. Despite the impact of lost business there, most are expecting to report strong first-quarter earnings, in large part thanks to surging oil and gas prices.
Key Background:
Russia’s invasion of Ukraine has slammed energy markets, causing the price of oil to surge to as much as $130 per barrel last month, though they have since moderated somewhat. After weeks of volatile trading, the price of U.S. benchmark West Texas Intermediate now sits at $98 per barrel, while global benchmark Brent crude is trading at around $103 per barrel.
Further Reading:
Major Bank Is First To Forecast A Recession—More Could Follow (Forbes)
These Energy Stocks Are Surging As Oil And Gas Prices Keep Climbing With No Relief In Sight (Forbes)
Stocks Fall After Historic U.S. Ban On Russian Energy, Oil Nears $130 Per Barrel (Forbes)