Putin Had ‘Mixed Feelings’ on Rosneft’s $55 Billion TNK-BP Deal

President Vladimir Putin said he and the government had “mixed feelings” when he first heard about state-run OAO Rosneft’s plan to buy BP Plc’s Russian oil venture, boosting state ownership in the world’s biggest oil and gas producing nation.

Rosneft agreed to buy out both BP and its billionaire partners in TNK-BP, Russia’s third-largest oil company, for almost $55 billion, creating a crude producer with output equal to Exxon Mobil Corp., the world’s biggest publicly traded oil company.

“When BP’s management approached me and said, ‘We would like to partner with Rosneft,’ we couldn’t say no because otherwise it would seem that we were pushing them toward TNK, with whom they were in constant conflict,” Putin told the Valdai group of foreign analysts and reporters at a meeting today outside Moscow.

The deal will benefit Rosneft by giving BP two board seats, improving transparency at the Moscow-based company, Putin said. BP will end up with 19.75 percent of Rosneft after using some of its sale proceeds to buy state-held shares. It will also end the fraught, nine-year venture between BP and the billionaires.

TNK-BP accounted for about a quarter of BP’s global output and returned $19 billion in dividends to the U.K. company. The company hasn’t paid dividends in 2012 because it has lacked a functioning board since December.

Rosneft agreed to buy BP’s 50 percent of TNK-BP for $26.8 billion in cash and shares and has an initial agreement to acquire the half of the company owned by AAR, which represents companies controlled by billionaires Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, for $28 billion in cash, according to an Oct. 22 statement from the company.

The share swap between Rosneft and BP is akin to privatization, Putin said today.