By Ron Bousso
LONDON (Reuters) - BP faces a first and heavy loss from its stake in Russia's Rosneft due to plummeting oil prices and a crumbling rouble, potentially forcing it to write down the value of its once-prized asset.
BP's fourth-quarter earnings could fall by more than two thirds from the previous quarter to 5 cents per share as Rosneft will weigh on its profits with a loss of up to $750 million (589 million pounds), according to several forecasts.
This would be the first loss since BP acquired its 19.75 percent stake in government-controlled Rosneft in March 2013 in a $25 billion deal that saw BP fold its half of TNK-BP, then-Russia's third largest oil company, into Rosneft in exchange for cash, Rosneft stock and a seat for BP chief executive Bob Dudley on its board.
The deal was hailed by many as a major boost to BP as Rosneft offered a foothold in a major oil producing country with strong internal growth. Rosneft accounted for nearly one third of BP's oil and gas production in the first nine months of 2014 at just above 1 million barrels of oil equivalent per day and 8.4 percent of BP's profits over that period.
In 2013, BP's set value of its equity in Rosneft in 2013 at $13.68 billion.
Rosneft's market value in dollars has however more than halved this year.
"BP may see a massive Q4 earnings hit from Rosneft as the weaker rouble and oil price could lead to a $750 million net loss... which would take our BP Q4 EPS to 5 cents or $1 billion of net income," U.S. energy investment bank Tudor, Pickering, Holt & Co. said in a note.
A BP spokesman would not comment. BP will report its full year results in February. BP's Dudley has said in recent months that Rosneft was a long-term investment.
WRITE DOWN
According to Iain Reid, analyst at BMO Capital Markets investment bank, Rosneft could account for a $630 million loss on BP's fourth quarter balance sheet.
BP's cash flow from Rosneft is formed by the dividend which reached $693 million in July, roughly 2.7 percent of BP's 2013 cash flow. The dividend could vanish next year.
"Viewed annually through 2016, our forecast Rosneft FCF (free cash flow) generation comes nowhere near the required level to cover debt repayments," Barclays said in a report.
Dividends "will be substantially lower next year, assuming they are not scrapped altogether," according to Barclays.
With around $30 billion of debt in need of repayment or refinancing over the next two years, the pressure on Rosneft is considerable, as sanctions limit its ability to refinance foreign debt and raise capital.
BP may opt to write down the value of its Rosneft equity, sources said.
As a result of the size of its Rosneft holding, BP adjusts the value it ascribes to the asset each quarter. BP last reported the value of its Rosneft stake in the 2013 annual report.
"Rosneft has $20 billion of debt repayable by April 2015, meaning a dilutive equity issuance is possible, impairing the value of BP's stake and cutting the production BP could book," Tudor, Pickering, Holt & Co. said.
(Editing by Tom Pfeiffer and William Hardy)