BP Nears Deal for Selling Its Half of Russian Venture in Exchange for a Stake in Rosneft

on Oct 18, 2012

British oil and gas company BP (LON:BP) is on the verge of a deal which will see it take a significant stake in what is poised to be the world’s largest publicly listed oil producer. State-backed Russian energy firm Rosneft (MCX:ROSN) has lodged a bid for the acquisition of BP’s 50 per cent stake in its troubled TNK-BP (MCX:TNBP) joint venture in a deal believed to be the second-largest in the Russian energy industry, The Times reported on 18 October 2012. The terms of this deal would see BP take a stake in Rosneft, as well as cash.

**BP and AAR Divorce**
Moscow-based TNK-BP is an energy company jointly owned by BP and AAR, a group of four Russian billionaire shareholders. The two partners have been locked in a boardroom dispute for much of the group’s existence, but the relations between BP and the Soviet-born quartet soured last year after AAR blocked a proposed deal between BP and Rosneft to explore an area of the Russian Arctic. The consortium argued that this would mean BP violating the terms of the joint venture. In a sign that relations between the two partners have really deteriorated, in June BP announced that it intends to sell its 50 stake in the joint venture. The British company had until midnight yesterday (17 October 2012) to offer their stake in the joint company for sale. The meeting of the deadline left the way open for Rosneft to move in – an unpalatable prospect for AAR.

!m[Russian Energy Company Rosneft Poised to Swallow TNK-BP and Become the World’s Largest Oil Producer](/uploads/story/599/thumbs/pic1_inline.png)Signalling their unwillingness to work alongside Rosneft, the Russian oligarchs — who initially wanted to buy BP out of the venture – said last week that they may instead sell their half of the multibillion businesses. With AAR also putting its stake up for sale, Rosneft has moved towards a complete takeover of TNK-BP.

**Rosneft Takeover of TNK-BP**
Yesterday, Rosneft’s chief executive Igor Sechin flew to London for talks with BP before tabling the estimated $28 billion (£17 billion) bid this morning. Sechin is understood to be offering between 10 and 20 per cent of its shares and about $15 billion (£9 billion) in cash for the British company’s 50 per cent stake in the venture. In a separate deal struck on Tuesday (16 October 2012) in Moscow, Rosneft executives agreed in principle with the oligarchs who run AAR to buy their half of the joint venture, also for $28 billion.

A deal has not been finalised yet, but it is believed that BP will benefit from the large dollop of cash for its stake in TNK-BP and use it to pay a settlement of up to $25 billion (£15 billion) to the US Department of Justice to settle all the remaining criminal and civil liabilities relating to its Deepwater Horizon spill in 2010. According to analysts, BP will also benefit from the deal through its stake in Rosneft which will help the UK firm maintain its exposure to Russia, the world’s largest producer of gas and oil.

**The Next Largest Oil Producer **
The potential deal for the acquisition of TNK-BP is also seen as very positive for Rosneft. If the company pulls off the double swoop, the enlarged group would become the world’s largest publicly traded oil company. The expanded Rosneft would produce about 3.15 million barrels a day of oil compared to 2.3 million barrels a day produced by the current number one publicly traded energy company ExxonMobil (NYSE:XOM).
Transferring a large chunk of Russia’s oil production from private hands into state control, the deal will also signal the most significant realignment of the Russian oil industry since the breakup between 2004 and 2007 of Yukos, once the country’s biggest private oil company.


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