You sell in dollars, you pay debts in dollars...why account in rubles?
Photographed by Chris Ratcliffe — Bloomberg via Getty Images
By Geoffrey Smith
February 3, 2015

BP Plc (BP) lost nearly a billion dollars in the final quarter of 2014–and it could have been a lot worse but for some sly (if understandable) accounting changes at Russian oil giant OAO Rosneft, in which it has a 20% stake.

Analysts had expected a massive write-down of the value of BP’s Rosneft stake to reflect both the collapse in oil prices at the end of 2014 and the equally dramatic collapse of the ruble (the currency in which Rosneft has to present its accounts).

However, the Russian company said in a statement Tuesday that it had made use of a provision in International Accounting Standards that allows it to change the way it accounts for swings in foreign exchange rates, effectively stripping out much of the effect of the ruble’s decline.

Rosneft has huge dollar-denominated debts that it took on in order to buy BP out of its joint venture with oil company TNK in 2013. Much of the ruble’s decline in December was down to the fact that Rosneft, which usually provides a prop for the exchange rate by repatriating most of its export earnings, had to use them to repay billions of dollars to international banks. It then borrowed $10 billion worth of roubles to pay its taxes and wages back home, with the help of an accommodating central bank. (The company has to pay back another $4 billion this month, but that should be a less stressful experience for all concerned if oil prices continue to recover.)

BP’s shares had risen 2.3% by lunchtime in London in response to the news, mainly because underlying profits, at $2.2 billion, were well ahead of the $1.6 billion consensus forecast.

The U.K.’s biggest oil major joined the crowd of oil majors slashing investment budgets in response to the drop in crude prices, saying capital expenditure would only be $20 billion this year, instead of the $24-$26 billion promised earlier.

Elsewhere, BG Group Plc (BRGYY), another big U.K. oil and gas producer, said it would cut capex by some 30% to between $6-$7 billion, from $9.8 billion. BG also took a non-cash charge of $8.9 billion in the fourth quarter to reflect the reduced value of its portfolio of projects in a low oil-price environment, driving it to a net loss of $1.05 billion for the year.

Despite the barrage of bad numbers, the stocks of both companies–and of the broader oil sector–have risen sharply in the last couple of days as crude prices have recovered to their highest levels since the start of the year. Benchmark crude futures traded above $51 a barrel in early trade Tuesday and by lunchtime in London were at $50.88, up 2.7% on the day.

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