BP Closer to a New Russian Venture after Putin Talks

on Sep 21, 2012

As it seems, BP (NYSE:BP, LON:BP) might soon be ready to begin another chapter in its Russian energy story after a private meeting with the Russian president Vladimir Putin. On 20 September 2012, The Times reported that “positive” talks with Mr Putin might have brought BP closer to ditching the troublesome TNK-BP joint venture and entering into another alliance to explore the Russian Arctic.

According to The Times article, the meeting took place at Mr Putin’s private retreat in the Black Sea resort of Sochi and was attended also by BP’s chief executive Bob Dudley, Carl-Henric Svanberg, BP’s chairman, and Igor Sechin, the head of the state-controlled oil company Rosneft (MCX:ROSN, LON:ROSN). Currently, BP is in advanced talks with its Russian billionaire partners and with the Kremlin-backed company in an attempt to sell its 50 percent stake in the TNK-BP joint venture to Rosneft. The Times notes that industry sources in Moscow believe that the sale will pave the way for the UK oil company to pursue another deal with Rosneft involving the exploration of the Russian Arctic.

!m[](/uploads/story/431/thumbs/pic1_inline.png)Quoting market sources in Moscow, The Times reports that Rosneft is planning to offer $15 billion (£9.3 billion) in cash and $10 billion in shares (12.5 percent, according to Bloomberg) for BP’s stake in TNK-BP, Russia’s third largest oil company. Rosneft is reported to have started talks with a dozen banks so as to raise the $15 billion in loans for funding the deal.

The current negotiations with Rosneft are not BP’s first attempt to exit the TNK-BP joint venture. As noted in The Times article, a year ago AAR, the vehicle of the Russian oligarchs that own the other half of TNK-BP, secured a High Court injunction against BP’s plan to sell its stake. This time around, however, BP may have Mr Putin’s support, which is seen as critical to the transaction. According to a recent Financial Times article, Russia’s Prime Minister Dmitry Medvedev is battling Rosneft’s Mr Sechin for control of the country’s energy sector. “Only the big man in the middle will make the final decision”, notes one senior western banker, referring to Mr Putin, as quoted by the FT.

Exiting the TNK-BP joint venture would allow BP to look into another venture with Rosneft, namely drilling in the Arctic. “If there’s a joint venture with Rosneft, Arctic exploration must be on the agenda,” notes Peter Hutton, an RBC Capital Markets analyst, as quoted by Bloomberg. The Times quotes Stuart Joyner, an analyst at Investec (LON:INVP), who pointed out that a new alliance would be positive for Mr Dudley’s reputation. “The proportion of undiscovered reserves in the Arctic is one of the largest in the world. The Arctic is an area where BP should be present”.
Still, according to the FT article, people familiar with the matter have commented that BP’s negotiations with both Rosneft and AAR could drag on for months, with no deal materialising until the end of the year.

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