BP board supports TNK-BP share sale to Rosneft - report

British Petroleum’s Board of Directors has unanimously voted in support of the sale of company’s TNK-BP share to Rosneft, reports Kommersant Daily. The deal could make the Russian state-owned enterprise the world’s biggest listed oil company.

According to Kommersant’s insider information, for its 50 per cent share in TNK-BP, British Petroleum gets US$17 billion in cash and nearly 13 per cent of Rosneft shares. With Rosneft’s Global Depositary Receipts (GDRs) being traded on the London Stock Exchange, with a current capitalization at $71.7billion, the 13 per cent share is valued at approximately $9.3 billion.

Allegedly, BP representatives will also enter Rosneft’s board of directors as BP becomes the second-largest shareholder of the Russian state-owned enterprise.

The sides are expected to continue discussing details of the deal over the weekend and it is possible an official statement will follow early next week.

So far neither BP nor Rosneft have made any comments on the deal.

On Friday BP’s chief executive Bob Dudley laid out various options to the Board of Directors. Financial Times said the scenarios varied from selling BP’s shares to Rosneft to staying with current partners, the quartet of Soviet-born billionaires who make up the Alfa Access Renova (AAR) consortium.

“It’s a very complex transaction,” Dudley is reported as saying.

The Kommersant says BP has failed to find common ground with the AAR consortium which initially intended to buy out 25 per cent of TNK-BP for $7-10 billion. Since formed in 2003, TNK-BP has brought $19 billion in dividends to its shareholders, making it the most profitable BP investment. But the disputes between the British company and its oligarch partners were regular and fierce. At their peak, the quarrels of shareholders even forced Bob Dudley, then-TNK-BP’s CEO, to leave Russia in 2008.

AAR plans to buy out control stake of the TNK-BP never came true as the banks consortium addressed to refused to finance the deal due to obligations owed to Rosneft.

Earlier this week the Russian oil major reportedly got AAR’s 50 per cent share of TNK – BP for $28 billion, which made Rosneft the priority buyer of the rest of shares TNK–BP belonging to BP.

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Will Rosneft have to borrow money for TNK-BP deal?

­Given that Rosneft earned $10.2 billion in net income during 2011, the Russian oil producer will need to finance the deal.

International banks are likely to finance the lion’s share, while domestic lenders are expected to cover the deficit.

A bond issue could be another solution, as Rosneft is reported to have started taking investor applications for bond series, worth $650 million on October 22. Raiffeisen Bank, VTB Capital, Gazprombank and Sberbank CIB should become joint organizers.

Rosneft will need to use a so-called “third payment structure,” in order to avoid an investment downgrade or a cut in the government’s stake to below 50 per cent, Ildar Davletshin, oil and gas analyst at Renaissance Capital told Business RT. Under the scheme “one of the partners won’t get all that cash immediately, but probably getting the money in installments. Otherwise, Rosneft debt will be too high or the government will be diluted below 50 per cent.”

Still, there are several options Rosneft might use to get the deal smoothly, the Financial Times points out.

Firstly, the Russian government can step in and provide direct financial support for the transaction.

Secondly, though the details of the deal with AAR are secret, the payments to AAR might be deferred for a number of years.

Finally, with the oil price over $100 a barrel, the combined output of Rosneft and TNK-BP should significantly increase state company’s borrowing capacity.

Rosneft is the leader in the Russian oil industry and one of the largest oil and gas companies in the world. Its main shareholder is the Russian government-owned Rosneftegaz, which holds 75.16 per cent of its stock. 

The TNK-BP deal comes at a time when Rosneft is undertaking large-scale offshore oil exploration in the Arctic in partnership with major international companies. Earlier this year Rosneft invited private oil companies to help take part in the operation. Rosneft’s proposal resulted in Arctic exploration deals with ExxonMobil, Statoil and Eni. However, the Western companies only got minor stakes of 30 per cent in the joint project and had to pay up-front investment costs. With these deals the foreign companies get access to the hydrocarbon reserves of the region, in return, Russia gets advanced Western technology and investment.