Rosneft Makes TNK Bid as Oil’s Second-Biggest Deal Nears: Energy

The sale of TNK-BP to Russian state oil company OAO Rosneft (ROSN) is shaping up to be the industry’s second-biggest deal ever.

Rosneft submitted a bid today to buy BP Plc’s 50 percent of TNK-BP for a mix of cash and shares that values the whole venture at $50 billion to $56 billion, a person with knowledge of the matter said. Rosneft, a vehicle for President Vladimir Putin to cement state control over the world’s largest oil and gas industry, already has a preliminary accord with BP’s billionaire partners, another person said.

A stake in Rosneft would allow BP to maintain a presence in Russia while exiting the 50-50 venture that brought billions in profits and years of conflict with its fellow investors. For Rosneft Chief Executive Officer Igor Sechin, who met BP counterpart Bob Dudley in London today, absorbing TNK-BP would raise oil and gas production to about 4.5 million barrels a day, matching Exxon Mobil Corp. (XOM)

“This changes the landscape of Russia’s oil industry, moving from Siberia to the Arctic, and enhances national control at the same time,” said Stuart Joyner, an analyst at Investec Securities Ltd. in London. “It’s the best offer BP (BP/) has on the table.”

While TNK-BP had focused on bolstering output from older fields in Siberia, BP last year offered its drilling expertise to Rosneft in a failed partership to explore Russia’s untapped Arctic waters. Rosneft’s offer today doesn’t include joint projects with BP, a person familiar with the talks said.

Biggest Since Mobil

BP’s billionaire partners, represented by AAR, are seeking $28 billion for their half of TNK-BP, a person familiar with the discussions said. That values a Rosneft bid for the whole company at $56 billion, making it the industry’s largest deal since Exxon Corp. bought Mobil Corp. in 1999 and the biggest acquisition by a Russian company.

Rosneft continues to evaluate a number of opportunities and will update the market when appropriate, a company official said today.

BP CEO Bob Dudley would need approval for any deal from a board meeting tomorrow, one of the people said, asking not to be identified because the matter is confidential. Sheila Williams, a spokeswoman for London-based BP, declined to comment.

BP offered to sell its half of Russia’s third-largest oil producer in June after relations broke down with AAR. The nine- year partnership has paid BP $19 billion in dividends and accounts for a quarter of BP’s global production.

AAR had initially expressed an interest in buying BP’s shares. The group decided not to bid for BP’s half of TNK-BP, Stan Polovets, chief executive officer of AAR, said by e-mail. Polovets declined to comment on any deal with Rosneft.

Credit Review

Rosneft, which had already expressed an interest in buying BP’s shares, is now in a position to move for the whole company. Rosneft’s acquisition of all of TNK-BP may lead to a review of whether state support is sufficient to maintain the oil producer’s investment-grade rating, Fitch Ratings said yesterday.

“There’s an industrial logic to Rosneft taking both halves of TNK-BP,” said Peter Hutton, an analyst at RBC Capital Markets in London. “Some sort of deal is likely.”

Putin has used Rosneft to reassert state ownership of Russia’s post-Soviet oil industry, giving it control of most of Yukos Oil Co.’s fields when the government used tax disputes to bankrupt the private-sector oil producer in 2006. Combined with TNK-BP, Rosneft would pump more than four of every 10 barrels each day in Russia.

BP’s Future

Dudley wants to maintain a position in Russia as he revamps BP’s global business after the 2010 Gulf of Mexico oil spill that threatened to ruin the company. He’s already sold $33 billion of assets to help meet the cost of the disaster.

Photographer: Chris Ratcliffe/Bloomberg

BP Plc Chief Executive Officer Bob Dudley wants to maintain a position in Russia as he revamps BP’s global business after the 2010 Gulf of Mexico oil spill that threatened to ruin the company. Close

BP Plc Chief Executive Officer Bob Dudley wants to maintain a position in Russia as he... Read More

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Photographer: Chris Ratcliffe/Bloomberg

BP Plc Chief Executive Officer Bob Dudley wants to maintain a position in Russia as he revamps BP’s global business after the 2010 Gulf of Mexico oil spill that threatened to ruin the company.

BP and Rosneft are no strangers. Dudley tried to forge an alliance with Rosneft last year to drill untapped Arctic reserves before it was blocked by AAR. The British oil company holds 1.25 percent of Rosneft after buying about $1 billion of shares in its 2006 initial public offering. BP and Rosneft are partners in the German Ruhr Oel Refinery venture.

Rosneft rose 2.9 percent to 219.47 rubles today in Moscow, its highest close in seven months, boosting its market value to about $76 billion. OAO TNK-BP Holding (TNBP), the company’s listed unit, fell 3.5 percent to 80.06 rubles, as the biggest decline since BP’s June 1 announcement of a sale lowered its value to $39 billion. BP rose 0.8 percent in London today after climbing the most since May yesterday.

An agreement of intent has been signed between AAR and Rosneft, Russian Deputy Prime Minister Arkady Dvorkovich told reporters in Moscow yesterday. Any deal would need government approval and no requests have been received, he said.

Dividend Outlook

Rosneft’s acquisition of TNK-BP won’t create a monopoly in the market, Energy Minister Alexander Novak told reporters today in Moscow. “There is enough competition in the market.”

The management has recommended a $4.1 billion interim dividend on 2012 profit, according to documents seen by Bloomberg News yesterday. The board may decide on the dividend in the next few weeks.TNK-BP hasn’t paid dividends on any 2012 income because it has lacked a full board since December.

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.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; 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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