BP Plc (BP/) will buy back $8 billion of shares from investors after completing the sale of 50 percent of Russian oil producer TNK-BP.
BP’s first buyback since 2008 will return the original amount invested in the venture 10 years ago, the London-based company said in a statement today. The sum is twice as much as Chief Financial Officer Brian Gilvary signaled last year would be enough to offset earnings per share lost from selling the stake in Russia’s third-largest producer.
The deal to sell out of TNK-BP gives Chief Executive Officer Bob Dudley a fresh start in Russia after a fractious 10- year partnership with a group of billionaires. BP shares have slumped since the 2010 Gulf of Mexico oil spill and the company faces fines after a trial in New Orleans.
“This shows confidence for BP,” said Iain Reid, an analyst at Jefferies & Co. in London. “It makes them more shareholder-friendly, but I don’t think they’ll recover their luster until the Macondo trial is over.”
BP rose 1.9 percent to 457.7 pence in London, the highest since Feb. 12.
After selling its TNK-BP stake to OAO Rosneft (ROSN), BP will become the second-biggest investor in Russia’s largest oil company with a 19.8 percent shareholding. Following the buyback, which will take eight to 12 months to complete, BP will retain $4.5 billion in cash from the deal.
“We have released cash equivalent to six years of BP’s anticipated future dividends from TNK-BP,” Dudley said in the statement. “BP is moving on to the next phase of its business in Russia.”
TNK-BP, which accounted for about a quarter of BP’s output and a fifth of its reserves, paid the company $19 billion in dividends since it was formed in 2003. BP’s initial investment in the venture was $8 billion.
Dudley said yesterday that BP and Rosneft are looking at offshore projects in Russia to work on together.
In the U.S., there’s still a risk that BP could be found grossly negligent for the 2010 spill, which would bring maximum Clean Water Act fines of more than $17 billion. The trial over liability for the disaster began Feb. 25. Judge Carl Barbier will determine responsibility for the disaster and whether one or more of the companies involved acted with willful or wanton misconduct or reckless indifference -- the legal requirement for establishing gross negligence.
To contact the reporter on this story: Brian Swint in London at firstname.lastname@example.org