BP Plc is likely to miss a second deadline for a share swap with OAO Rosneft after failing to agree a buy-out of its partners in Russia’s third-largest oil producer in time, said people with knowledge of the plans.
For the $7.8 billion swap to go forward, BP must cede its role in an Arctic exploration deal to its TNK-BP venture, subject to Rosneft’s approval, according to an arbitration ruling on May 6. The swap expires at midnight in London.
BP has sought to buy out the billionaires’ half of TNK-BP, although no deal has been reached yet, said three people, who declined to be identified given the sensitivity of talks. BP raised a previous offer to about $30 billion, said two people. A deal is unlikely to be reached today, said two of the people.
The planned BP-Rosneft alliance would give the U.K. oil explorer access to 100 billion barrels of oil equivalent resources in Russia’s Arctic, as well as a stake in Russia’s largest oil producer. The deal would be Robert Dudley’s biggest since becoming BP chief executive officer after the Gulf of Mexico oil spill last year, and a collapse would be a setback.
“AAR is getting stronger as this drags on,” Ivan Mazalov, director of Prosperity Capital Management, said in Moscow.
Dudley has been involved in talks in Moscow during the past several days, said one of the people. Rosneft last month pushed back the swap deadline to May 16. It hasn’t commented publicly yet on today’s deadline.
Toby Odone, a London-based BP spokesman, declined to comment, as did the press services for Rosneft and AAR.
AAR won an injunction to stop the agreement, announced Jan. 14, claiming the TNK-BP shareholder agreement gave the venture exclusive rights to pursue opportunities for BP in Russia.
The billionaires, represented by the AAR group, rejected the offer of cash and shares in the U.K. oil producer, Interfax reported, citing unidentified people.
BP and AAR set up TNK-BP in 2003 as a 50-50 venture, with the support of then-President Vladimir Putin. In 2008, the billionaires ousted Dudley as head of the venture after a shareholder dispute about strategy. TNK-BP accounts for about a quarter of BP’s output and a fifth of reserves.
AAR had valued half of TNK-BP at about $35 billion, two people familiar with their plans said earlier.
BP will not offer the billionaires a large shareholding in the company, Dudley said April 14. AAR rejected offers of cash, participation in the Arctic and international projects to allow the alliance to go through, he said at the time. The partners also rejected a $27 billion proposal.
BP planned to swap 5 percent of its shares for 9.5 percent of Rosneft. The stakes each had a value of about $7.8 billion when the deal was announced on Jan. 14 in London. Putin, now prime minister, met with Dudley earlier that day and praised the strategic alliance with Rosneft as having a potentially “serious impact on the global oil and gas industry.”
Putin has said the government won’t interfere in the shareholders’ conflict. “It’s a corporate issue and it should be decided on a corporate level,” Dmitry Peskov, Putin’s spokesman, said by phone today.
Rosneft wants BP, not TNK-BP, for the Kara Sea project, CEO Eduard Khudainatov has said. TNK-BP doesn’t have Arctic offshore experience.
“We still believe that BP and Rosneft will be developing the Arctic shelf jointly,” Svetlana Grizan, an analyst at VTB Capital in Moscow said by phone. “If not, Rosneft will find another partner.”
Rosneft has an alternative: to walk away from BP and choose another partner to develop the Arctic, such as Royal Dutch Shell Plc or Chevron Corp., Citigroup Inc. analysts Ron Smith, Ildar Khaziev and Mark Fletcher said in a note on May 10.
BP remains “optimistic” about reaching a deal, Dudley said May 13. “I can’t comment about time but I’m sure we’ll see a deal sooner or later,” he said at the time.