11th hour for BP and Rosneft

With the deadline approaching for BP and Rosneft to agree a share swap which is currently held up by BP’s joint venture partners in TNK-BP, Business RT spoke with Vladimir Rozhankovsky, Head of research at Nord Capital, about the likely outcomes.

RT:Senior Russian energy figures have said over the weekend that they expect a solution will be found. What should be read into that view?

VR:“Well finally afterwards they should be one way or another.The thing is this deal is obviously kind of complicated.It has been way too long for this kind of simple solution. Right now there are certain odds that this deal will be finalized, but not right now, let’s say in half a year from now.Because, yeah, formally, they can announce the deal starting from this moment, however it will be only a formal agreement.As a matter of fact there is no mutual accord on what to do next and after that, because the interests of the two companies has not been properly aligned.The thing is, basically, that in the initial stage we are credited the position of TNK-BP.Because Rosneft tried to deviate, to violate, certain provisions and in this sense, TNK-BP rightfully submitted a claim to the London Arbitrage to untie this conflict.Right now we credit more the position of BOP, because TNK-BP is not in a position to insist that some form of financial remuneration, financial compensation has to be paid to TNK-BP just for the mere fact that it is not in a position to, technically, develop the Arctic Sea shelf.It’s not a rightful point, therefore it has to wait patiently until BP will make up its mind what to do with this.”

RT:What do you think a solution could be? Do you think they will offer shares and cash, and what do you think the actual package will be that they will offer?

VR:“Clearly I can say what they cannot do right now.BP explicitly is not willing to pay any cash at the moment for the ongoing deal.That’s number one and we have to basically align the whole story to this point.The next thing is that the deal obviously is a win-win situation for both BP and Rosneft, so they are going to go ahead, and finalise this.That’s number two.Number three is technical solutions.Technical solutions are kind of shaky at this point, so I think BP is not going to pay cash right now, but it might invite TNK-BP in some form of cooperation.”

RT:How strong is AAR’s (the Russian partners of TNK-BP) negotiating position?Because won’t it harm the value of TNK-BP?

VR:“I don’t think so. I don’t think it will substantially impair the shareholder value of TNK-BP because initially it was very unlikely that TNK-BP will go ahead and participate in equal basis in this partnership, because as we spoke previously, it does not possess necessary technical equipment and skill to do such complicated projects on the Arctic shelf.Therefore I don’t think it will drastically be devalued, however, it can impair the shareholder quality of Rosneft.Because Rosneft is stuck in between, it cannot move any further without a TNK-BP decision.So the decision has to be very explicit, very sharp, and it has to be put in paper.”

RT:So you think we wil get a positive decision for all parties?

VR:“Sooner or later.”