OREANDA-NEWS. BP and Total's credit ratings are unlikely to be affected by a possible further escalation of sanctions that cut off the dividend stream from their stakes in Russian energy companies or even expropriated the assets, says Fitch Ratings. However, an expropriation of the assets would have an effect on BP's financial flexibility and Total's expansion strategy.

In our analysis of an energy company's operational profile Fitch put more emphasis on oil and gas production from consolidated subsidiaries than equity affiliates, such as BP's stake in Rosneft and Total's stakes in Novatek and Yamal LNG. This is because affiliates have their own capex and debt-servicing commitments, meaning the cash flows they generate may not be readily available to service debt at the parent company level.

The size of the dividends each company receives is also small compared to total cash flows. BP (A/Stable) is entitled to around USD750m of dividends from its 19.75% stake in Rosneft in 2014 and Fitch expect this stream to be relatively stable in the medium term. But if dividends were cut off, for example due to Russia imposing its own sanctions, the reduction in BP's funds from operations would be less than 5%, leading to a very minor impact on FFO-adjusted net leverage. Dividends from 'AA' rated Total's 18% stake in Novatek represent less than 1% of FFO. But in both cases the stakes would probably be impaired, leading to a potentially significant impact on reported earnings.

Fitch do not include the Rosneft stake, valued at USD15bn, in our analysis of available cash so there would be no direct impact on the rating if the assets were expropriated. But this would reduce BP's ability to deal with other risks, such as if fines and costs related to the Macondo disaster ended up being much higher than Fitch expect. Even in this case, Fitch believe liquidity is adequate because the compensation it is likely to be spread over several years.

Delays to or the loss of Total's 20% stake in the Yamal LNG plant project, which is due to come on line by 2017, would hamper its LNG expansion strategy. Total is the second-largest LNG operator globally and its strong position in the market is positive for its rating as the long-term outlook for the industry remains sound. Total intends to boost its LNG capacity to 20 million tons per annum by 2017 from 12mpta in 2013 through four LNG projects, including Yamal LNG.