BP Said to Seek Buyout of TNK-BP Billionaires to Salvage Rosneft Alliance

BP Plc (BP/) is seeking to buy out its billionaire partners in Russia’s third-largest oil producer, as a planned share swap with state-controlled OAO Rosneft expires today, said people with knowledge of the plans.

An agreement hasn’t been reached on buying the billionaires' half of TNK-BP, said three people, who declined to be identified before a deal. The new offer may be worth about $30 billion, according to two people.

Rosneft may participate in a buyout, while the government will have to agree to any deal, said one of the people. The billionaires, represented by the AAR group, rejected an offer of about $27 billion last month.

BP’s planned alliance with Rosneft would give it access to unexplored reserves in Russia’s Arctic and would be Robert Dudley’s biggest deal since becoming BP chief executive officer after the Gulf of Mexico oil spill last year. AAR won an injunction to stop the Jan. 14 alliance, claiming the TNK-BP shareholder agreement gave the venture exclusive rights to pursue opportunities for BP in Russia.

BP and AAR set up TNK-BP in 2003 as a 50-50 venture, with the support of Prime Minister Vladimir Putin, who at the time was Russia’s president. 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.

Rejected Offers

A deal may involve cash and BP and Rosneft shares, one person said. AAR had valued half of TNK-BP at about $35 billion, two people familiar with their plans, said earlier.

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

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.

An arbitration panel on May 6 allowed BP to proceed with the share swap if it ceded its role in the Arctic project to TNK-BP, subject to Rosneft’s approval. Rosneft last month pushed back the swap deadline to May 16. It hasn’t commented publicly yet on today’s deadline.

“We still believe that BP and Rosneft will be developing the Arctic shelf jointly,” Svetlana Grizan, an analyst at VTB Capital in Moscow said by phone. “If not, Rosneft will find another partner.”

‘Corporate Issue’

Rosneft wants BP, not TNK-BP, for the Kara Sea project, CEO Eduard Khudainatov has said. TNK-BP doesn’t have Arctic offshore experience. Under the Jan. 14 agreement, 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 at the time.

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

Rosneft has an alternative: to walk away from BP and choose another partner to develop the Arctic, such as Royal Dutch Shell Plc or Chevron Corp., 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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