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TNK-BP Seeks BP Algerian Assets in Foreign Expansion

BP's Salah Gas in the Sahara Desert
In addition to exploration acreage, BP operates two gas fields, Salah Gas in the Sahara Desert, seen here and Amenas in the southeast of the country. Photographer: Adam Berry/Bloomberg

TNK-BP, the energy venture between BP Plc and Russian billionaires, will look to acquire the London- based company’s Algerian fields to accelerate overseas expansion.

TNK-BP’s billionaire shareholder and interim chief executive officer, Mikhail Fridman, said he hopes “their fate is decided positively.” He spoke in Algiers, where he is accompanying Russian President Dmitry Medvedev.

Fridman aims to build foreign operations so that at least half the company’s production comes from outside Russia. The company has already said it will bid for BP assets in Vietnam and Venezuela. Expanding overseas will allow TNK-BP to double its value per barrel of reserves to about $8 from $4 today, said Stan Polovets, chief executive officer of the billionaire partners’ holding company AAR.

BP is the largest foreign investor in Algeria, according to the company’s website. In addition to exploration acreage, it operates two gas fields, Salah Gas in the Sahara Desert and Amenas in the southeast of the country, and is a partner in the Rhourde El Baguel oil field. Spokesman David Nicholas declined to comment on whether BP will sell the assets.

Higher Multiples

“As soon as BP receives Algeria’s permission to transfer the assets to TNK-BP, TNK-BP will take a serious look at these assets,” Polovets said. Algerian assets would provide “a launchpad for further expansion on the African continent, particularly in North Africa.”

Discussions between BP and Algerian state oil company Sonatrach on the transfer of assets are currently taking place, Polovets said in an e-mailed response to questions.

TNK-BP and BP have a “gentlemen’s agreement” to give the venture the first look at available assets, Deputy CEO Maxim Barsky said in Algiers. Sonatrach and Norway’s Statoil ASA are interested in buying out BP’s stakes in joint projects and have rights of first refusal to do so, he said.

The venture may offer Sonatrach asset swaps to gain access to projects, Russian Energy Minister Sergei Shmatko told reporters. He said no decision is expected on BP’s Algerian assets for the next two months.

TNK-BP, owned 50-50 by BP and Russian investors, last week received board approval to negotiate for the Nam Con Son gas block, pipeline and facilities in Vietnam and oil assets in Venezuela. Tony Hayward, who stepped down as BP CEO on Oct. 1, has taken a seat on the board of TNK-BP after pledging in July to sell as much as $30 billion of BP assets to pay for the Gulf of Mexico oil spill, the worst in U.S. history.

Vietnam Project

The Vietnam project will be offered to an affiliate first, BP CEO Bob Dudley said on Oct. 4 in New Delhi.

“Integration of BP’s assets in Venezuela aligns well with strong political Venezuela-Russia ties,” Polovets said. A final decision on those and the Vietnamese assets will likely be made “within a few weeks,” he said.

TNK-BP, Russia’s third-largest oil producer behind state-owned OAO Rosneft and OAO Lukoil, accounts for about a quarter of BP’s output and a fifth of reserves. TNK-BP produces about 1.9 million barrels of oil equivalent a day.

Fridman, the interim CEO until Barsky takes over next year, said in a Bloomberg interview last month that TNK-BP should “expand broadly in the world.” The push will be supported by Russian President Medvedev and Prime Minister Vladimir Putin, Polovets said.

Moscow’s Position

“Moscow’s position is simple: if Russian companies become stronger, Russia as a country becomes stronger,” Polovets said. “The Russian leadership knows that by entering new markets, TNK-BP and other Russian companies will gain new experience and expertise that can then be applied to projects in Russia.”

The acquisitions may impact TNK-BP dividends, though the total payout this year will be around $3 billion, Polovets said.

While TNK-BP has paid out as much as 60 percent of net income in dividends in the past, “this ratio could be slightly lower in 2010 if a number of large asset transactions is completed before year end,” Polovets said. “But nobody expects it to fall below the minimum 40 percent.”

The Venezuelan and Vietnamese assets are worth “more than $1 billion,” Viktor Vekselberg, another of TNK-BP’s billionaire shareholders, said today in an interview with Bloomberg Television.

“TNK-BP has sufficient cash flow and ample debt capacity to pay for these assets. Finding the cash for these assets is not going to be a problem,” Polovets said.

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