BP plc on Tuesday reported a 65% increase year/year in profits in 2Q2014 on clear signs of recovery in the Gulf of Mexico (GOM). However, Group CEO Bob Dudley warned that Russian investments are growing more risky on escalating economic sanctions.

In the second quarter, total replacement-cost profits, similar to U.S. net profits, climbed to $3.18 billion, versus year-ago profits of $2.4 billion. Revenues rose slightly to $95.83 billion, compared with $95.7 billion.

U.S. output, led by the GOM, rose by almost one-third to 429,000 boe/d. Domestic profits also more than doubled from a year ago to $1.4 billion. BP has 10 rigs running in the U.S. offshore.

Of concern to some investors, as BP’s share price fell on Tuesday, is the operator’s stake in OAO Rosneft, Russia’s state-owned producer. The interest contributed $1.02 billion to the bottom line, almost one-third of the quarterly earnings, versus year-ago profits of $218 million.

BP gained close to a 20% stake in the producer in late 2012 after selling its half-interest in another Russian venture, TNK-BP, for cash and Rosneft stock (see Daily GPI, Oct. 23, 2012). The Rosneft transaction had been aimed at exiting political problems with TNK-BP and to “significantly derisk our position in Russia,” Dudley said.

However, Russia’s involvement in Ukraine has created even more potential problems. The United States earlier this year added Rosneft CEO Igor Sechin to its sanctions list, and prohibited U.S. nationals from doing business directly with him. Dudley, a U.S. citizen, is on Rosneft’s board, but the sanctions haven’t affected his work since they apply to Sechin’s personal business, he told analysts.

“I don’t deal with Mr. Sechin on his personal business,” Dudley said. The sanction against Sechin, ‘from BP’s perspective…has not had any effect.”

The current upheaval needs to be taken in perspective, said the BP boss. BP takes a long-term view of its energy projects and it has the correct strategy in the region. “We absolutely stand by, strategically, what we’ve done.”

If there are more international sanctions imposed on Rosneft or other 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…”

The statements came the same day that the European Union (EU) issued sanctions agreed to by the United States to impose restrictions against Russian oil companies, banks and defense companies. Among other things, the sanctions would not allow technology to be imported by Russia that could, among other things, access deepwater resources, the Arctic and unconventional onshore targets. The measures would target oil production, not natural gas, on which EU countries depend.

“Who knows what this means yet?” said Dudley, a few hours before the sanctions were announced. He called the downing of a Malaysian jetliner earlier this month, which prompted the new sanctions, “a real tragedy” that would require “collective resolution by the governments involved.”

Regarding Macondo’s ongoing litigation, another court trial is set for 2015 regarding penalties under the U.S. Clean Water Act. BP also set aside another $240 million for costs related to the oil spill, bringing the total to date to $43 billion.

More asset sales are planned to hit a $10 billion target by the end of 2015. During the second quarter, BP reached agreements to sell $3.4 billion of properties in North America and elsewhere.

The sales agreements and higher costs cut into BP’s performance, with overall upstream profits down 8% from a year ago. There was a similar decline in the refining/marketing business.