OAO Rosneft (ROSN), Russia’s state oil company, is the leading contender to buy BP Plc (BP/)’s 50 percent stake in TNK-BP as the U.K. explorer looks to exit the venture that’s provided $19 billion in dividends since 2003.
BP has asked for bids by 9 a.m. London time tomorrow, a person with knowledge of the matter said, declining to be named because it’s confidential. Rosneft, which has raised $15 billion in loans to finance an offer, is the frontrunner because it’s backed by the Russian government, said two other people familiar with the process.
BP put its stake in Russia’s third-largest producer up for sale in June and was required to negotiate in good faith until today with its current partners, four billionaires represented by the AAR group. Only Rosneft and AAR have said they’re considering a bid and there’s no guarantee the process will lead to a sale.
“We don’t think AAR has the capacity to make a bid” that’s competitive, said Peter Hutton, an analyst at RBC Capital Markets in London. “While there’s nothing that says a deal would have to be done right on the heels of the negotiation period, they’re free to do it now and any time within a week would make sense.”
A Rosneft tie-up may bring BP opportunities to drill in Russia’s Arctic region as production from TNK-BP’s aging fields in Siberia starts to decline. BP Chief Executive Officer Bob Dudley, a former head of TNK-BP, has said he’s still committed to Russia as he revamps the company’s global business after the 2010 Gulf of Mexico oil spill.
“The sales process continues,” said Toby Odone, a spokesman for London-based BP. “When we have news, we’ll announce it.”
Officials at Moscow-based Rosneft and AAR declined to comment.
Rosneft would have to tell the government, which owns 75 percent of the company, before committing to an acquisition, Energy Minister Alexander Novak said yesterday. His ministry hasn’t yet seen any proposals.
The purchase of half of TNK-BP would make Rosneft the world’s largest publicly traded crude oil producer.
BP’s attempt to sell its stake comes a year after AAR rejected a $32 billion offer for its half from BP and Rosneft. That offer came after AAR blocked a share swap and Arctic drilling alliance between BP and Rosneft.
BP is likely to get between $25 billion and $30 billion for its stake, with about $15 billion in cash and $10 billion in shares of Rosneft, Hutton said. Rosneft has worked with non- Russian banks to finance an offer and has reduced the interest it has offered to pay on the $15 billion loan agreement after banks oversubscribed on the deal, people with knowledge of the terms said.
BP and AAR openly clashed several times during their partnership. In 2008, Dudley was forced to resign as head of the venture and leave Russia after months of battling between the shareholders over strategy. Mikhail Fridman, one of the billionaires, quit as CEO of TNK-BP this year, saying the relationship with BP had run its course.
TNK-BP hasn’t paid dividends on any 2012 income because it has lacked a full board since December.
“Either AAR buys the share or continues its operations with a new shareholder,” Vagit Alekperov, the CEO of Lukoil, Russia’s second-biggest oil producer, said in an interview in London yesterday. “There is no other way and that’s why AAR shareholders should be more flexible in this situation.”
AAR has said it will make a bid for BP’s half. The billionaires have also sent BP notice of their intention to sell or list the stake in London trading if Rosneft’s offer trumps its own.
“I don’t think there’s any prospect for BP agreeing to sell any of their stake to AAR,” Colin Smith, head of energy research at VTB Capital in London, said in a telephone interview. “It’s clear that BP feels the relationship with AAR has broken down irretrievably. While there have been discussions about Rosneft making a bid, BP has always been careful to point out that no outcome can be assured.”
Fridman and BP’s other billionaire partners in TNK last year blocked a $7.8 billion share swap and exploration pact with Rosneft in court, saying BP was required to pursue all opportunities in Russia exclusively through TNK-BP.
Russian President Vladimir 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. Rosneft, which is 75 percent owned by the government, is the country’s biggest producer. BP held 1.25 percent of Rosneft after buying about $1 billion of shares in its 2006 initial public offering.
An expanded Rosneft including half of TNK-BP would increase crude oil output to 3.29 million barrels a day, according to figures given by both companies. That would surpass PetroChina Co. which had 2.43 million barrels a day of output in April, the most among the world’s publicly traded energy companies, according to Bloomberg data.
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