Rosneft to Defend BP Deal as Russia Billionaires Win Ruling on Share Swap
BP Chief Executive Officer Robert Dudley
Simon Dawson/Bloomberg
The January agreement with Russia’s state-owned oil company was part of Chief Executive Officer Robert Dudley’s strategy to revive the U.K. producer after last year’s Gulf of Mexico oil spill last year.
The January agreement with Russia’s state-owned oil company was part of Chief Executive Officer Robert Dudley’s strategy to revive the U.K. producer after last year’s Gulf of Mexico oil spill last year. Photographer: Simon Dawson/Bloomberg
State-controlled OAO Rosneft will seek to push through a $7.8 billion share swap and Arctic venture with BP Plc (BP/) after the deal was blocked by the U.K. company’s Russian billionaire partners.
Rosneft “will defend its position in the deal, a deal that is good for Russia,” Deputy Prime Minister Igor Sechin, who is also the oil producer’s chairman, told reporters today near Moscow. “BP suits us as a partner.”
BP will apply for a ruling on whether the share swap can proceed by itself, the U.K. company said in a statement. It is disappointed by yesterday’s outcome and will look to “resolve its differences” with its billionaire partners in TNK-BP, Russia’s third-biggest oil producer.
BP’s partners, represented by the AAR group, claim the right for TNK-BP to pursue new opportunities in Russia for the London-based oil company. Last month, they won a temporary injunction on the deal, which was extended yesterday by an arbitration tribunal.
Sechin said Rosneft may seek compensation as it incurs losses as the deal remains suspended. “The company will assess who is causing the agreement to fail.”
The ruling is a setback for BP’s efforts to exploit one of the largest untapped oil troves. The January agreement with Russia’s state-owned oil company was part of Chief Executive Officer Robert Dudley’s strategy to revive the U.K. producer after last year’s Gulf of Mexico oil spill.
Damaged Output
“AAR has now put itself in a very strong position to have either a more active role for TNK-BP in the deal or to get compensation,” said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow.
Tensions between the two sides have flared up again after two years of peace following a battle over TNK-BP’s strategy in 2008 that damaged output and led to Dudley’s dismissal after five years in the top post at the venture.
AAR claimed Dudley favored BP’s interests over its own at TNK-BP, which accounts for about a quarter of BP’s global output and a fifth of reserves. The U.S. executive and BP denied the charge. Dudley became BP CEO on Oct. 1.
“Willfully ignoring the provisions of the shareholder agreement was a serious misjudgment by BP that has severely damaged the relationship between the TNK-BP shareholders; it has also harmed BP’s reputation in Russia,” AAR CEO Stan Polovets said in an e-mailed statement yesterday. “We expect Bob Dudley to make every effort to rectify the situation and rebuild the trust that has been lost.”
‘Looking Unprepared’
Russian Prime Minister Vladimir Putin lauded BP and Rosneft’s alliance at a meeting with Dudley near Moscow on Jan. 14, hours before the deal was announced. BP agreed to swap 5 percent of its shares for a 9.5 percent stake in Rosneft and form an Arctic offshore exploration venture, in the first deal of its kind between a state-owned company and an international oil producer.
“Most people would have assumed that in such a large strategic deal, the issues would have been straightened out beforehand,” said David Hart, an analyst at Westhouse Securities Ltd. in London. “This makes Dudley look unprepared, it seems like a very basic thing to get wrong.”
Putin said on March 4 that Dudley left him “completely unaware” of a potential spat. None of the parties informed Rosneft “there could be any difficulties,” he said.
Rosneft’s Arctic development will continue, whoever the partner is, Sechin said.
First Well
BP will have to reach an agreement with the TNK-BP board if it still wants to complete a deal with Rosneft, AAR’s Polovets said.
TNK-BP management, led by billionaire shareholder and interim CEO Mikhail Fridman, had proposed buying BP shares and swapping them for a stake in Rosneft, as well as replacing BP in the Arctic. The arrangement was rejected at a March 12 meeting in Paris by BP’s four directors on the TNK-BP board.
BP had asked the board at that meeting to consider allowing the share swap with Rosneft and clearing TNK-BP to start talks with Rosneft about the Arctic exploration. AAR rejected the plan. The swap would reduce TNK-BP’s negotiating leverage with Rosneft, TNK-BP said at the time.
The current situation “doesn’t make us nervous,” Sechin said. “We’re assuming that BP weighed all the risks, its authority and abilities when it signed the agreement with Rosneft, as did AAR when taking action to prohibit the deal.”
To contact the reporter on this story: Torrey Clark in Moscow at tclark8@bloomberg.net
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
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