BP’s Putin Meeting Signals Exploration Deal With Rosneft

BP Chief Executive Officer Bob Dudley
BP Chief Executive Officer Bob Dudley said in July, “BP hopes to continue to play a role in Russia’s energy sector for many decades to come.” Photographer: Chris Ratcliffe/Bloomberg

BP Plc talks with President Vladimir Putin indicate that the U.K. oil company may gain access to Russia’s Arctic fields as part of a deal to sell half of its TNK-BP venture to OAO Rosneft.

BP Chief Executive Officer Bob Dudley yesterday spoke to Russian President Vladimir Putin and Rosneft CEO Igor Sechin about building cooperation with Russian partners, a Kremlin spokesman said. Rosneft has asked banks for as much as $15 billion to finance the purchase of BP’s half of TNK-BP, Russia’s third-largest oil company, according to a person with direct knowledge of the deal.

“It looks like the deal will be $15 billion in cash, plus maybe $10 billion in shares and access to the Arctic,” said Stuart Joyner, an analyst at Investec Securities Ltd. in London. “That package would be good for BP. The company’s strongest card was always that it’s a plausible and worthy partner for Rosneft in the Arctic.”

BP is recasting its global operations after the 2010 Gulf of Mexico oil spill wiped out a third of its market value. The company has sold more than $32 billion in assets to shore up its balance sheet while it attempts to reach a settlement with the U.S. Department of Justice and draw a line under the disaster. Dudley said in July that investors should be open to receiving a combination of cash and shares for the TNK-BP stake.

Texas City

Putin is inviting foreign producers into Russia to help keep the country’s oil output at a post-Soviet high of 10 million barrels a day. Exxon Mobil Corp. took BP’s place in a Kara Sea exploration pact that failed last year and also agreed to start drilling shale prospects in Siberia next year.

BP is in talks to sell its Texas City, Texas, refinery to Marathon Petroleum Corp. for as much as $2.5 billion, the Financial Times reported today, citing people it didn’t identify. BP sold some of its Gulf of Mexico fields to Plains Exploration and Production Co. for $5.55 billion this month.

BP rose 1.1 percent to 443.75 pence in London trading.

David Nicholas, a company spokesman, declined to comment on the Texas City talks. BP reiterated its long-term commitment to Russia in yesterday’s meeting, said Vladimir Buyanov, a spokesman in Moscow.

BP’s June 1 decision to seek a sale of TNK-BP, a 50-50 venture with a group of billionaires, followed a failed share-swap and exploration deal with Rosneft for the Kara Sea in 2011. Rosneft, Russia’s biggest oil producer that together with BP had offered to buy out the billionaire partners for $32 billion last year, said in July it was interested in bidding for the stake.

Cash and Shares

In selling TNK-BP, BP “will look carefully at value,” Dudley said on a July 31 conference call with analysts. “How we do that in terms of combinations, whether it’s all cash or whether it’s shares and cash, far too early to say.”

Relations between BP and its partners in the nine-year-old TNK-BP venture have often been fractious. 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. He was supposed to stay at helm of the company until the end of 2013.

AAR, which represents the partners in TNK-BP, has said they’re interested in buying half of BP’s 50 percent stake. The group blocked the $7.8 billion deal with Rosneft last year in court, arguing that BP was required to pursue all opportunities in Russia exclusively through TNK-BP.

Arctic Agenda

“If there’s a joint venture with Rosneft, Arctic exploration must be on the agenda,” said Peter Hutton, an analyst at RBC Capital Markets in London. A Rosneft venture “would be positive but difficult to value. It’s a vehicle for the value of TNK-BP to be realized without taking $30 billion out of the country.”

TNK-BP produced 2.04 million barrels of oil and gas a day in the first quarter, and output at Rosneft, Russia’s largest producer, was about 2.63 million barrels a day. TNK-BP has paid BP $19 billion in dividends since 2003 and accounts for a quarter of the company’s global output.

AAR rejected a proposal from the U.K. energy producer for TNK-BP to pay a $1 billion dividend on July 30. TNK hasn’t paid dividends on any 2012 income as it has lacked a functioning board since December.

Dudley said July 31 that the plan to sell the stake in TNK-BP doesn’t mean the company intends to leave Russia. “BP hopes to continue to play a role in Russia’s energy sector for many decades to come,” he said.

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