BP Shareholders in Push for Cash Payout from Rosneft Deal

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on Oct 22, 2012

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BP Shareholders in Push for Cash Payout from Rosneft Deal

**Anglo-Russian Transaction in Advanced Talks**

British energy company BP (LON:BP) has approved a $27 billion (£17 billion) plan to off-load its current troublesome Russian operation and forge a deep new alliance with the Kremlin. The oil major will sell its lucrative but problematic 50 per cent stake in TNK-BP (MCX:TNBP) to the Russian state oil giant Rosneft (MCX:ROSN) in return for cash and shares.

BP’s board approved the deal on Friday (19 October 2012) at the company’s St James’s Square headquarters in central London. Subject to final negotiations, BP will receive $11-13 billion (£7-8 billion) in cash, a 16-20 per cent stake in Rosneft and two board seats at the Kremlin-controlled group. On Monday, the FTSE 100 company said that no official agreement had yet been reached and that it was in advanced talks with Rosneft over the stake. Yet, some BP shareholders were understood to have concerns over their future dividend payouts with the company set to lose its dividend stream from TNK-BP, which made regular payments after the Rosneft deal, who are not renowned for providing shareholder dividends, The Telegraph reported on 22 October 2012.

**Rosneft Deal to Change BP’s Earning Profile**
!m[TNK-BP Sale to See BP Investor Returns from Russia Fall as Much as 85% ](/uploads/story/613/thumbs/pic1_inline.png)Since BP teamed up with four Russian billionaires to form TNK-BP in 2003, the British company has reaped more than $19 billion (£11.8 billion) in dividends, while only last year BP’s holding in the joint venture resulted in a $3.7 billion (£2.3 billion) payout. Following the deal with Rosneft, however, BP investors claim the company’s earnings profile will change with payouts likely to fall as much as 85 per cent.

The concerns come despite a promise from the Russian state firm to pay 25 per cent of its annual
earnings back to BP shareholders. Rosneft has assured BP that return will be legally binding and have been sanctioned by Russian president Vladimir Putin. The Kremlin-controlled company will vote on the return at a meeting on November 30 where it is expected to be rubber stamped.

**Rosneft’s Answer to BP Shareholders’ Concerns**
According to The Telegraph, citing sources close to Rosneft, the Russian company has stressed that its president, Igor Sechin, has suggested the company’s dividend policy will be expansive. Rosneft insiders also responded to BP investors’ concerns by pointing out that the UK company’s joint venture with the quartet of Russian oligarchs at AAR had become dysfunctional, leading AAR to freeze dividends this year as a means of trying to force BP to buy its half. Instead, Rosneft has made offers to buy both halves of TNK-BP.
Should the BP and AAR deals be finalised and survive a months-long Russian government approval process, it would hand Rosneft control of around one-third of crude output in Russia, with the company churning out more than four million barrels a day. BP’s overall exposure to Russian output would be lower, but the holding will secure it seats on the Rosneft board and closer ties than any of its rivals to Sechin, who has a significant say in the Russian energy sector.