BP may acquire as much as 12.5 percent of OAO Rosneft (ROSN) as part of a deal to sell half of TNK to Russia’s state-owned oil company, Kommersant reported today, citing unidentified people with knowledge of the negotiations. Rosneft is seeking up to $15 billion in loans to buy BP out of its 50-50 partnership, people with knowledge of the matter said yesterday.
While a minority stake in Russia’s largest oil producer will give BP little day-to-day control, it may open opportunities to explore untapped Arctic reserves and Siberia’s unconventional fields, analysts said. BP Chief Executive Officer Bob Dudley, who decided to sell the TNK shares in July after years of troublesome relations with the other investors, met Putin and Rosneft CEO Igor Sechin this week to discuss the London-based company’s future in the country.
“It could turn out to be a good deal,” said Iain Armstrong, an analyst at Brewin Dolphin Ltd. in London. “You’re then in Russia with Putin’s national champion. It’s a potential feather in the cap for Bob Dudley and allows the company to spread their wings in joint ventures where the terms aren’t so onerous.”
BP spokesman David Nicholas declined to commment on the progress of negotiations to sell the company’s TNK shares.
Dudley told investors in July that they should be open to a combination of cash and shares for TNK-BP, which has paid BP $19 billion in dividends since 2003 and accounts for a quarter of the company’s global output.
Mikhail Fridman and BP’s other billionaire partners in TNK blocked a $7.8 billion share swap and exploration pact with Rosneft last year in court, arguing that BP was required to pursue all opportunities in Russia exclusively through TNK-BP.
AAR, which represents the partners in TNK-BP, has said they’re interested in buying half of BP’s 50 percent stake.
Putin is inviting foreign producers into Russia to help keep the country’s oil output at a post-Soviet high of 10 million barrels a day. Exxon Mobil Corp. (XOM) took BP’s place in a Kara Sea exploration pact that failed last year and also agreed to start drilling shale prospects in Siberia next year.
Putin and Rosneft would also be getting a good deal by paying for a stake in TNK-BP partly in shares, analysts at Sberbank CIB said. Russia owns 75 percent of Rosneft and thecompany itself has more than 10 percent of its shares.
“For Rosneft shareholders, being able to convert part of the deadweight treasury shares into a stake in a cash-yielding asset would obviously seem attractive,” analysts led by Oleg Maximov said in a research note today.
The nine-year-old TNK-BP venture has been profitable as BP was able to use its know-how to revive production from aging fields. TNK-BP produced 2.03 million barrels of oil and gas a day in the second quarter, and output at Rosneft, Russia’s largest producer, was about 2.62 million barrels a day.
Still, relations between BP and its partners have often been fractious. In 2008, Dudley was forced to resign as head of the venture and leave Russia after months of battling between the shareholders over strategy. Fridman quit as CEO of TNK-BP this year, saying the relationship with BP had run its course. TNK hasn’t paid dividends on any 2012 income because it has lacked a functioning board since December.
Some investors may be wary of accepting Rosneft shares for BP’s stake in TNK-BP, said Jason Kenney, an analyst for Banco Santander SA (SAN) in Edinburgh. The bank lowered its recommendation on BP to Hold from Buy on Sept. 18.
“BP shareholders could choose to invest in Rosneft directly if they wished,” he said.
At the same time, keeping access to Russia is important for BP as it tries to ramp up production as it sells assets to shore up its balance sheet following the 2010 Gulf of Mexico oil spill. Russia was second only to Saudi Arabia in oil production last year.
“You’ve got to go where the resources are,” Kenney said. “Oil and gas reserves last well beyond regimes and economic cycles. If you can get an exploration legacy in a place like Russia on fair terms, it’s beneficial for everybody.”