BP excludes Sakhalin from TNK deal

Debra Beachy

Petroleum News contributing writer

BP said Aug. 29 it has completed the $6.15 billion merger with its Russian partners to form TNK-BP, but that a change had been made to the arrangement.

BP said it decided to exclude its interest in Sakhalin from the deal with its partners, Alfa Group and Access-Renova. Although BP’s share of Sakhalin had been intended to form part of the new joint venture, a Sakhalin joint venture with license partner Rosneft was still being negotiated, and the Sakhalin interest could become part of TNK-BP at a later time, BP said.

The deal combines the partners' Russian and Ukrainian oil and gas businesses into TNK-BP, owned and managed 50:50 by BP and Alfa Group and Access-Renova.

BP said the exclusion of Sakhalin, together with interest and other minor adjustments, accounted for the slight rise in its initial cash payment to Alfa Group and Access Renova: $2.6 billion, up from the $2.4 billion estimate announced in June.

Alfa Group and Access-Renova's 50 percent interest in Slavneft was also incorporated into TNK-BP, in exchange for a cash payment by BP of $1.35 billion. Completion of the Slavneft deal, which is subject to the approval of the regulatory authorities of the EU, Russia and Belarus, is expected before the end of the year. The deal will be effective from May 1, 2003.

The merger makes BP one of the largest private investors in Russia.

“The creation of TNK-BP represents great progress towards meeting BP's long-term commitment to Russia,” John Browne, BP's chief executive, said in a statement. “In just seven months, a truly major oil and gas company has emerged as an operating and competitive reality. The addition of the Slavneft interest into TNK-BP represents an important step in the building of the future of the company.” Russia’s anti-monopoly ministry gave its approval of the venture earlier in the week. It still needs to be approved by five European Union countries.

TNK-BP is Russia's third largest oil and gas company, producing some 1.2 million barrels a day from its main oil fields in West Siberia and the Volga Urals. Completion of the Slavneft acquisition will increase TNK-BP's production by some 160,000 barrels a day.

With a combined workforce of 113,000 people, the new company will have proven reserves of 5.2 billion barrels of oil, of which 3.2 billion barrels are expected to be recovered before lease renewal, BP said.

The ventures main fields include five in West Siberia with a total output of 800,000 barrels a day and the Volga Urals field, with production of 400,000 barrels a day. The company also will have 2,100 filling stations in Russia and the Ukraine, as well as two refineries in Russia plus a stake in a Belarus refinery.