Arbitration panel approves BP Rosneft share swap – with a catch

Photo from http://www.tnk-bp.ru
The arbitration panel trying to negotiate an outcome satisfactory to BP, its partners in Russian Joint venture TNK-BP, and Russian oil major, Rosneft has approved the share swap between BP and Rosneft.

­The approval comes at the price of TNK-BP taking the place of BP in the Arctic development joint venture with Rosneft, and is contingent upon both BP and Rosneft agreeing that shares swapped would be for investment purposes only and held in trust, with voting rights exercised by independent nominees, and neither company having board representation on each others Boards in respect of these holdings.

The consent order means that BP may now approach Rosneft to comply with the order, with an interim order prohibiting the share swap and creation of a joint venture between BP and Rosneft to develop the Arctic, remaining in place until Rosneft agrees.

Stan Polovets, CEO of AAR, said in an emailed statement that the Russian shareholders in TNK-BP, who appear to be the net beneficiaries of the decision, applauded it.

“We welcome today’s developments.  Since BP announced the Rosneft deal in January, AAR has been consistently guided by two priorities. Firstly, we wanted to protect the integrity of our Shareholder Agreement and the value of TNK-BP which has proved itself to be a fantastic business with a bright future. And secondly, we see the Arctic transaction with Rosneft as a great opportunity for TNK-BP and for Russia which we would like to succeed. Today’s agreement provides a good way forward for achieving these priorities and opens the way to bring BP’s valuable expertise and technology to offshore exploration in Russia. We are now focused on working with BP and management of TNK-BP to continue the development of TNK-BP in Russia and internationally.”

Christine Tiscareno, equity analyst at Standard and Poor’s in London underlined the prevailing sentiment  that BP had suffered another setback in attempt to further its proposed joint venture and share swap with Rosneft.

“Should this go through, we think the winner is yet again the Alfa-Access-Renova (ARR) consortium, owning TNK-BP with BP (50/50). It would transform TNK-BP into a major international player, with access to BP’s main assets: its technology and offshore expertise. Yes, it allows BP to move forward – the shares are up 2% on the news – but in our view, it lessens its status and makes them look (or maybe they are) desperate. AAR appears to be calling the shots.”