Rosneft to Pay $26.8 Billion in Deal for TNK-BP Stake

OAO Rosneft (ROSN) agreed to buy BP Plc (BP/)’s half of the TNK-BP venture for $26.8 billion in cash and shares in the biggest acquisition by a Russian company.

BP will sell its 50 percent stake in Russia’s third-largest oil producer for $17.1 billion in cash and 12.8 percent of Rosneft’s shares, according to a statement today. BP will reinvest $4.8 billion in the government’s shares of Rosneft, leaving it with $12.3 billion in cash, 19.75 percent of the state-backed company and two board seats.

The disposal, BP’s largest deal for 13 years, is Chief Executive Officer Bob Dudley’s boldest move yet to transform the company after the 2010 Gulf of Mexico oil spill. For Rosneft CEO Igor Sechin, who’s also set to buy the other half of the company from BP’s billionaire partners, absorbing TNK-BP would raise oil and gas production to about 4.5 million barrels a day, matching Exxon Mobil Corp. (XOM)

“It’s a relief for BP that a deal is done,” said Peter Hutton, an analyst at RBC Capital Markets in London. “It’s also quite an achievement.”

Sechin met Russian President Vladimir Putin today to discuss the transaction. Rosneft also has an agreement to buy the other half of TNK-BP from a group of billionaires for $28 billion in cash, Rosneft said in a separate statement.

BP shares gained as much as 2 percent to 459.35 pence in London and traded at 455 pence at 12.29 p.m. local time. Rosneft rose as much as 3 percent.

Solid Returns

“Rosneft is set to be a major player in the global oil industry,” Dudley said in a statement. “This material holding in Rosneft will, we believe, give BP solid returns.”

BP has sold about $33 billion in other assets since 2010 as it focuses on more profitable crude oil production following the Gulf spill that erased about a third of the company’s market value. Today’s deal releases BP from a difficult nine-year relationship with its billionaire partners in TNK-BP, which accounted for about a quarter of BP’s global output and returned $19 billion in dividends.

While TNK-BP had focused on bolstering output from aging Siberian fields, BP sought to expand in Russian exploration last year, offering its drilling expertise to Rosneft to tap the country’s Arctic waters. BP’s TNK-BP partners, represented by the AAR holding vehicle, blocked that deal.

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.

Kara Sea

Fridman and his partners last year argued in court that BP was required to pursue all opportunities in Russia exclusively through TNK-BP. Exxon took BP’s place in the deal to explore the Kara Sea region, and also agreed to start drilling shale prospects in Siberia.

Rosneft is serving as a vehicle for Putin to cement state control over the world’s largest oil and gas industry, gaining more influence over energy revenue to underpin public spending as Russia’s economy slows. About half of Russian government revenue comes from the oil and gas industry. If Rosneft buys all of TNK-BP, its output alone would exceed that of every Middle Eastern country except Saudi Arabia.

Prime Minister

Putin, who returned to the presidency this year following a term as prime minister, has invited foreign companies into Russia to keep oil output at a post-Soviet high of 10 million barrels a day. London-based BP already owned 1.25 percent of Rosneft, the country’s biggest producer, after buying about $1 billion of shares in its 2006 initial public offering.

Rosneft has relied on Sechin’s access to Putin as the state strengthened control over the energy industry. The two men have worked together for more than 20 years.

As board chairman from 2006 to 2011, Sechin helped transform Rosneft into Russia’s biggest crude producer with assets from bankrupt Yukos Oil Co., and gained preferred access to Arctic prospects.

That ascent has allowed Rosneft to eclipse Kremlin-backed OAO Gazprom, the world’s largest natural gas producer, as the dominant force in the Russian energy industry. Increasing production of shale gas in the U.S. has reduced North American import demand and prompted European customers to seek cheaper prices as well, dragging on Gazprom’s performance. It’s also been targeted by a European Commission antitrust probe of its pricing practices in central and eastern Europe.

To contact the reporters on this story: Matthew Campbell in London at mcampbell39@bloomberg.net; 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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Photographer: Andrey Rudakov/Bloomberg

A logo is seen illuminated above a TNK-BP gas station in Moscow.

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Photographer: Andrey Rudakov/Bloomberg

A logo is seen illuminated above a TNK-BP gas station in Moscow. Close

A logo is seen illuminated above a TNK-BP gas station in Moscow.

Photographer: Aleksey Nikolskyi/RIA Novosti via Bloomberg

OAO Rosneft CEO Igor Sechin met Russian President Vladimir Putin today to discuss the transaction. Close

OAO Rosneft CEO Igor Sechin met Russian President Vladimir Putin today to discuss the transaction.

Photographer: Andrey Rudakov/Bloomberg

For Rosneft CEO Igor Sechin, who’s also set to buy the other half of the company from BP’s billionaire partners, absorbing TNK-BP would raise oil and gas production to about 4.5 million barrels a day, matching Exxon Mobil Corp. Close

For Rosneft CEO Igor Sechin, who’s also set to buy the other half of the company from BP’s billionaire partners,... Read More

Photographer: Simon Dawson/Bloomberg

BP Chief Executive Officer Bob Dudley said, “This material holding in Rosneft will, we believe, give BP solid returns.” Close

BP Chief Executive Officer Bob Dudley said, “This material holding in Rosneft will, we believe, give BP solid returns.”

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