Rosneft to enter talks with BP to buy TNK-BP stake
MOSCOW, July 24 – Russian state oil company Rosneft took centre stage in the dispute over assets owned jointly by BP and a group of billionaires, announcing today that it is to enter talks to buy the British oil major’s 50 per cent stake in TNK-BP.
Rosneft’s entry into the fray serves as a reminder to BP and AAR, the consortium representing the tycoons, that the government is likely to have the final say on the future of the US$60 billion (RM190.76 billion) business.
BP is seeking to exit its troubled but highly profitable investment in Russia’s third-largest oil company and find a new way to gain exposure to the country’s vast energy reserves. AAR has already expressed its interest in buying half of BP’s stake in TNK-BP, but it would also consider selling for cash and BP stock to end a shareholder relationship that has broken down irretrievably.
Rosneft’s gambit signals the resolve of new Chief Executive Igor Sechin, the energy “tsar” in Russia’s previous government, to build the country’s largest oil company into a national champion of global scale.
“Rosneft has an established expertise and track record in managing large assets and considers the potential acquisition of BP’s participation in TNK-BP to be an attractive commercial proposition,” Sechin said in a statement.
“The potential acquisition would complement its existing portfolio and create value for all stakeholders.”
Rosneft said separately that it had agreed to enter negotiations with BP on buying its 50 per cent stake in TNK-BP and had signed a non-disclosure agreement.
BP confirmed in a statement that it has signed a non-disclosure agreement with Rosneft and will start negotiations with the company. It added that while conducting parallel discussions with Rosneft and any other interested parties, it will also negotiate in good faith with AAR.
AAR, led by banking-to-retail tycoon Mikhail Fridman, declined to comment. Last week AAR expressed its interest in buying half of BP’s stake in TNK-BP, or 25 per cent, and has said it would be willing to pay US$10 billion
Under the TNK-BP shareholders’ agreement, BP should now conduct “good faith” negotiations on a stake sale to AAR. It can also negotiate with other parties but cannot conclude a deal with anyone else for a period of 90 days.
MARRYING THE JUDGE
BP’s stake in TNK-BP is estimated by analysts to be worth between US$25 billion and US$30 billion.
“If this were to happen (Rosneft buys out BP), it would be the best-case outcome for BP, but the worst case for AAR and bad for (TNK-BP) minorities,” Chris Weafer, chief strategist at Troika Dialog, said.
BP, having agreed a deal with the state, would gain access to projects similar to those involving other Western energy majors, such as ExxonMobil, that have recently struck exploration deals in Russia, Weafer added.
“It would still be in the Russia game, but with a cash payout and rid of its troublesome partners. A bit like getting a divorce and then marrying the judge.”
Bankers and analysts said that, by selling, BP would realise a slug of cash that would help it to meet multibillion-dollar liabilities arising from the Gulf of Mexico disaster of 2010 but it would cut off much-needed cash flows from Russia.
BP has reaped US$19 billion in dividends since buying into TNK-BP – more than double its original investment. AAR has pointed out that TNK-BP contributed more than 90 per cent to BP’s dividends of US$4.1 billion last year.
BP shares rose by 1.3 per cent on the news, while Rosneft stock gained by 0.6 per cent in Moscow. Shares in TNK-BP’s listed unit, which has a small free float, fell by 0.6 per cent.
BP announced on June 1 that it would put its TNK-BP stake up for sale after a collapse in relations with AAR that has left the joint venture without a functioning board.
Fridman quit as TNK-BP’s chief executive in late May, less than a week after Sechin was named Rosneft chairman in a move that signalled a major energy power shift in Russia after Vladimir Putin’s re-election for a third presidential term.
Sechin had been thwarted a year earlier by AAR in his attempt to forge a strategic offshore exploration deal and share swap between Rosneft and BP. AAR, which had blocked the alliance in the courts, turned down a US$32 billion last-ditch joint bid by Rosneft and BP to buy it out in May 2011.
The prospect of partnering now with a state company may not be palatable for Fridman and his co-investors – German Khan, Viktor Vekselberg and Len Blavatnik. One scenario would be that it is they who end up exiting the business, some analysts say.
“My opinion is that the end deal is going to be AAR exiting rather than BP, because I really don’t see a way for Sechin to work with AAR,” said one analyst from a Western bank in Moscow, speaking on condition of anonymity.
“I think the end deal is BP and Rosneft together buying out the AAR stake, 25 per cent each. That could easily be financed by Rosneft and BP.” – Reuters