Oligarchs crush BP's £10bn dream

Marion Dakers
BP’S gamble on Russian oil seemed in tatters last night, paving the way for an explosive BP shareholder meeting today.

BP had hoped to wow investors with the final version of its £10bn share swap with the government-run Rosneft at today’s meeting, after signing the deal in January.

But Rosneft last night said it would not extend the three-month deadline for sealing the deal, meaning BP, barring an 11th hour miracle, will today run out of time for its increasingly desperate talks with existing Russian oil partner TNK-BP, which BP runs with four oligarchs who operate under the name Alfa Access Renova (AAR).

BP had offered AAR a reported $27bn (£16.6bn)?to buy the group out of TNK-BP, which was turned down flat, and talks ended yesterday.

Today’s cut-off point means BP needs to negotiate a fresh deal with Rosneft that also keeps AAR sweet – although sources close to Rosneft said the firm will start the hunt for a different partner to explore its lucrative but closely-guarded Arctic oil reserves.

TNK-BP management will not make it easy for BP to convince them of a deal in any form, having instructed lawyers to look at launching a lawsuit against BP executives for failing to uphold the rights of the group.

One BP shareholder told City A.M. the firm has dismissed criticism of its attempts to deal with Rosneft and the Kremlin without the prior blessing of the AAR oligarchs.

“We had concerns about the legal risks as soon as the [Rosneft] deal was announced, but BP was quite emphatic, both publicly and privately, that the media were making a lot more of this than was justified,” said Karina Litvack, head of governance and sustainable investment at F&C.

BP’s annual meeting at the ExCel London centre today was already set to be a tumultuous gathering, with shareholders from around the world flying in to voice their fury at BP’s Gulf of Mexico disaster last April, which became the worst spill in US history.

Large investors, including US pensions giant Calpers and a raft of smaller ones, have voted against some directors’ appointments and pay.

While proxy votes were registered before the collapse of the Rosneft tie-in, shareholders said the topic will be a flashpoint at the meeting. “It will be a particularly bad-tempered affair,” according to one large investor.

But another said last night that BP will plough on with its attempts to do business with Rosneft, telling City A.M.:?“BP does not want to be a bid target, so this was a white knight transaction – with BP now put over a barrel, it could be very costly to get a deal that satisfies the TNK partners.”