BP Deadline for Rosneft Share Swap Passes Without Agreement on TNK Buyout

BP Plc (BP/)’s deadline to complete a $7.8 billion share swap with OAO Rosneft passed as talks on buying out partners in the U.K. company’s existing Russian partners failed to reach an agreement in time.

The Rosneft plan, announced in January, was halted after the billionaire partners in TNK-BP, won a legal challenge, claiming the deal violated their shareholder agreement. BP attempted to resolve the situation by offering about $30 billion for the 50 percent of TNK-BP is doesn’t own, three people with knowledge of the matter said yesterday. Talks may continue between BP, Rosneft and AAR, the group that represents the billionaires, even after the deadline, two of the people said.

The planned BP-Rosneft alliance included an exploration agreement that would give the U.K. oil explorer access to 100 billion barrels of potential resources in Russia’s Arctic. The collapse of BP Chief Executive Officer Robert Dudley’s biggest deal since taking charge last would be a setback for the company as it seeks to recover from last year’s Gulf of Mexico oil spill.

“The sides will reconsider going back to the negotiating table, but everyone is a strong negotiator,” Ivan Mazalov, director of Prosperity Capital Management Ltd., said yesterday. The billionaires “aren’t willing to get themselves out of the equation for any low price and they have a good position.”

Dudley has been involved in talks in Moscow during the past several days, one person said. Rosneft last month pushed back the swap deadline to the end of May 16 in London.

Toby Odone, a London-based BP spokesman, declined to comment, as did the press services for Rosneft and AAR.

Putin Support

BP and AAR set up TNK-BP in 2003 as a 50-50 venture, with the support of then-President Vladimir Putin. In 2008, the billionaires ousted Dudley as head of the venture after a shareholder dispute about strategy. TNK-BP accounts for about a quarter of BP’s output and a fifth of reserves.

BP will not offer the billionaires a large shareholding in the company, Dudley said April 14. AAR rejected offers of cash, participation in the Arctic and international projects to allow the alliance to go through, he said at the time.

BP planned to swap 5 percent of its shares for 9.5 percent of Rosneft. The stakes each had a value of about $7.8 billion when the deal was announced on Jan. 14 in London. Putin, now prime minister, met with Dudley earlier that day and praised the strategic alliance with Rosneft as having a potentially “serious impact on the global oil and gas industry.”

‘Corporate Issue’

Putin has said the government won’t interfere in the shareholders’ conflict. “It’s a corporate issue and it should be decided on a corporate level,” Dmitry Peskov, Putin’s spokesman, said by phone yesterday.

Rosneft wants BP, not TNK-BP, for the Kara Sea project, CEO Eduard Khudainatov has said. TNK-BP doesn’t have Arctic offshore experience.

Rosneft has an alternative: to walk away from BP and choose another partner to develop the Arctic, such as Royal Dutch Shell Plc (RDSA) or Chevron Corp. (CVX), Citigroup Inc. analysts Ron Smith, Ildar Khaziev and Mark Fletcher said in a note on May 10.

BP remains “optimistic” about reaching a deal, Dudley said May 13. “I can’t comment about time but I’m sure we’ll see a deal sooner or later,” he said at the time.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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