Breaking News Bar
updated: 10/22/2012 9:12 AM

Russia's Rosneft buys out TNK-BP

hello
Success - Article sent! close
  • British oil company BP says it has agreed to sell its stake in its TNK-BP joint venture to Russian oil company Rosneft for $17.1 billion in cash and a 12.84 percent stake in Rosneft. BP announced Monday, Oct. 22, 2012, that it would use some of the money to buy more shares in Rosneft to raise its stake to 19.75 percent.

      British oil company BP says it has agreed to sell its stake in its TNK-BP joint venture to Russian oil company Rosneft for $17.1 billion in cash and a 12.84 percent stake in Rosneft. BP announced Monday, Oct. 22, 2012, that it would use some of the money to buy more shares in Rosneft to raise its stake to 19.75 percent.
    Associated Press

 
Associated Press

MOSCOW -- Russian state-owned oil giant Rosneft strengthened its hold on the country's lucrative oil industry when it sealed a $61 billion deal, buying TNK-BP, the joint venture between a group of Russian oil oligarchs and the British energy company.

BP is not ending its 15-year involvement in Russia though as it is selling its 50 percent stake in TNK-BP to Rosneft for $17.1 billion in cash, and a 12.84 percent stake in the Russian oil group. It's also planning to use some of the money it's reaped from the sale to raise its stake in Rosneft to 19.75 percent.

Order Reprint Print Article
 
Interested in reusing this article?
Custom reprints are a powerful and strategic way to share your article with customers, employees and prospects.
The YGS Group provides digital and printed reprint services for Daily Herald. Complete the form to the right and a reprint consultant will contact you to discuss how you can reuse this article.
Need more information about reprints? Visit our Reprints Section for more details.

Contact information ( * required )

Success - request sent close

In a parallel development, Rosneft said it had agreed to buy the other 50 percent in the joint venture from AAR, for $28 billion, and that the deal was "entirely independent of the transaction with BP."

Following the deal, Rosneft will leapfrog ExxonMobil Corp. to become the world's largest publicly traded producer of oil and gas, in terms of output -- ExxonMobil's latest earnings show its daily output at 4.2 million, below the expanded Rosneft's projected 4.6 million.

It said it would finance the deal with its own cash as well as new borrowings.

Rosneft CEO Igor Sechin broke the news about the deal Monday afternoon to President Vladimir Putin, telling him that the deal would be worth about $61 billion.

"This is a good big deal which is important not only for Russia's energy sector but for the entire Russian economy," Putin said in remarks carried by Russian television.

Rosneft shares jumped more than 3 percent on the announcement but rolled back to trade only 1.2 percent higher at 215 rubles per share.

BP shares were down 0.3 percent to 449 pence following the announcement.

Russia is an important part of BP's business, accounting for a quarter of its oil production. BP Chief Executive Bob Dudley has looked to the country's vast oil resources as a key ingredient to the company's recovery from the disastrous oil spill in the Gulf of Mexico. BP is set to have two seats on Rosneft's nine-member board.

Ildar Davletshin, an oil and gas analyst at Renaissance Capital, said the deal "strategically looks very positive for BP" which has replaced "a private partner for a strategic national company which has much bigger access to resources in Russia and has much bigger political support in this country."

Davletshin said the deal should help ease concerns that Rosneft's strategy is driven by political considerations.

Rosneft has been involved in an array of overseas projects largely viewed as unprofitable but designed to prop up the Kremlin's foreign policy.

Davletshin said Rosneft will more likely be run "in the interests of shareholders" rather than serving the Kremlin's political agenda since BP will have two board members.

The TNK-BP joint venture has been troublesome -- albeit lucrative -- for BP. Dudley served as TNK-BP's chief executive until summer 2008 when he was forced to leave Russia after being denied a visa. Dudley and TNK-BP's Russian billionaire shareholders had serious disagreements over the company's long-term strategy and Dudley subsequently complained that the Russian shareholders were behind a campaign of harassment.

In 2011, relations worsened when BP tried to strike a separate partnership with Rosneft to explore for oil beneath the Arctic Ocean. AAR subsequently sued, alarming BP investors.

Dudley said in the statement on Monday that "BP intends to be a long-term investor in Rosneft -- an investment which I believe will deliver value for our shareholders over the next decade and beyond."

Sechin sounded optimistic about their tie-up with BP, saying that his company "would benefit from BP's experience and its track record of implementing best international practices in Russia."

Ratings agency Fitch last week warned Rosneft of a possible rating downgrade because of the TNK-BP deal. Fitch said the Russian company should have no problems raising the money to pay for 50 percent, but said the purchase of the other 50 percent could require so much borrowing that it could lead to a downgrade.

AAR didn't return calls seeking comment.

Share this page
Comments ()
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the X in the upper right corner of the comment box. To find our more, read our FAQ.