BP banks on Rosneft with $27bn tie-up

BRITISH oil giant BP yesterday agreed to sell out of its Russian joint venture in a deal that will net the firm just over $12bn (£7.5bn) – and a seat at the table of Russia’s newest superpower.

After weeks of negotiations, BP yesterday announced it will sell its 50 per cent stake in TNK-BP to state-controlled oil firm Rosneft for $12.3bn in cash plus an 18.5 per cent stake, a combined value estimated at $27bn.

Once the deal is completed, BP’s existing 1.25 per cent stake means it will hold 19.75 per cent of Rosneft – which with TNK-BP on board will become the world’s largest listed energy company. BP will also gain two seats on Rosneft’s nine-strong board, and become the firm’s second largest shareholder after the Russian state.

BP plans to use $4.8bn of the cash proceeds to buy a further 5.66 per cent of Rosneft from the Russian government.

In a separate deal also struck yesterday, Rosneft confirmed it would also buy out the other half of TNK-BP – controlled by four Russian oligarchs operating as AAR – paying $28bn for the remaining 50 per cent.

With TNK-BP on board, Rosneft will pump more oil and gas than US energy firm Exxon Mobil, while the share deal with BP will give the UK firm an all-important fresh start in Russia, the world’s biggest oil-producing area.

BP chief executive Bob Dudley hailed the tie-up, saying his firm is strengthening its position “in the world’s most prolific oil and gas regions”.

“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,” he said.

The oil major added that it supported Rosneft in “its plans to acquire additional equity stakes from other shareholders in TNK-BP”.

The Kremlin still has to give the nod to BP acquiring the extra stake in Rosneft, but Rosneft said it expects the sale to complete next year.

Igor Sechin, president and chairman of Rosneft, welcomed BP’s investment in the company. The state-owned firm is already in talks with banks over how to fund the cash buyout of TNK-BP, and it said yesterday it will use a combination of cash resources and new borrowings.

Neil Shah at Edison Investment Research, called the deal a “game changer”. “We would like to see BP move from retrenchment to expansion, as it would demonstrate confidence is returning. Consolidation in the oil sector is far from over,” he said.