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BP pursues blockbuster Russian sale Under preliminary agreement, state-owned oil company Rosneft would pay $17.1B in cash plus stock for BP’s half of TNK-BP Wesley Loy For Petroleum News
BP is negotiating to sell its 50 percent interest in TNK-BP, the third-largest oil producer in Russia.
BP and the state-owned Russian oil giant Rosneft announced Oct. 22 they had signed a preliminary deal under which Rosneft would pay BP $17.1 billion in cash plus shares representing 12.84 percent of Rosneft.
“BP intends to use $4.8 billion of the cash consideration to purchase a further 5.66 percent of Rosneft from the Russian government,” BP said. “On completion of the proposed transaction, BP expects to hold 19.75 percent of Rosneft shares, including BP’s existing holding of 1.25 percent, and to have received $12.3 billion in cash.”
BP said it and Rosneft have a 90-day exclusivity period to negotiate a definitive sale and purchase agreement, and that the deal is expected to close during the first half of 2013.
Rosneft also said it had an agreement to buy the other half of TNK-BP from AAR for $28 billion cash. AAR is a consortium of Russian investors Alfa Group, Access Industries and Renova.
“The transaction with AAR is entirely independent of the transaction with BP,” Rosneft said.
Russian oil titans Moscow-based TNK-BP was formed in 2003 as a result of the merger of BP’s Russian oil and gas assets and the oil and gas assets of AAR, the company’s website says.
It has a diversified upstream and downstream portfolio in Russia and Ukraine.
The company is Russia’s third-largest oil producer, employing about 50,000 people and operating in nearly all of Russia’s major hydrocarbon regions including West Siberia, the Volga-Urals and East Siberia, BP said.
TNK-BP’s average daily production in 2011 was 1.987 million barrels of oil equivalent per day.
Rosneft, a fully integrated national oil and gas company, produced 2.45 million barrels of oil per day in 2011, BP said. At year’s end, its proved developed reserves stood at 9.96 billion boe.
BP said it has a long relationship with Rosneft including an alliance that started in 1998 to explore the Russian continental shelf offshore Sakhalin Island.
‘Important day for BP’ The TNK-BP deal, if it goes through, would mark the biggest transaction in an extended sell-off for BP. The company has made numerous divestitures to raise cash in connection with the Deepwater Horizon disaster in the Gulf of Mexico in 2010. But BP’s Oct. 22 press release didn’t indicate the TNK-BP deal was a continuation, or the end, of those divestitures.
Relations between BP and its Russian partners in TNK-BP have been rocky at times. BP’s chief executive, Bob Dudley, once headed TNK-BP, but was forced to leave Russia in 2008 after being denied a work visa.
BP and Rosneft executives spoke highly of their future together.
“This is an important day for BP,” board chairman Carl-Henric Svanberg said. “Russia is vital to world energy security and will be increasingly significant in years to come. Russia has also been an important country for us over the past 20 years. Our involvement has moved with the times. TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia. Rosneft is set to be a major player in the global oil industry.”
Said Dudley: “BP intends to be a long-term investor in Rosneft.”
“Rosneft would welcome BP as a significant investor in the company, and I strongly believe that we would benefit from BP’s experience and its track record of implementing best international practices in Russia,” said Igor Sechin, Rosneft president and chairman. “I am especially pleased that BP has chosen to remain as one of the largest foreign investors in the Russian economy recognizing the potential of both Rosneft and the Russian oil and gas sector.”
BP said it expects to have two seats on Rosneft’s nine-person board.
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