Rosneft Completes $55 Billion TNK-BP Russian Oil Acquisition

OAO Rosneft, Russia’s biggest oil company, sealed its $55 billion acquisition of TNK-BP, becoming the world’s largest publicly traded oil producer by output.

Rosneft completed the transaction today, the state-run producer said in a statement. After using some of the proceeds from the sale of its half to buy more shares, BP Plc ended up with $12.5 billion in cash and 19.75 percent of Rosneft. Rosneft also paid $27.7 billion in cash to AAR, which represents the group of billionaires holding the other half.

“We welcome BP as the major shareholder of Rosneft, which will take part in shaping the company’s strategy,” Igor Sechin, Rosneft’s chief executive officer and a long-time ally of President Vladimir Putin, said in the statement.

The biggest takeover in Russian history strengthens the state’s hold over oil and gas production, the source of about half of government revenue. Moscow-based Rosneft, which was partly built on the state-enforced bankruptcy of Yukos Oil, will pump more than 4 million barrels of crude a day, exceeding the output of Canada or Iraq.

After recycling $4.9 billion of cash from the deal into Rosneft stock, BP has become the second-largest shareholder after the Russian state and CEO Bob Dudley will sit on the board. The U.K. company will be able to include its share of Rosneft’s reserves and production in its own accounts.

Ahead of Schedule

“The most significant thing is that the deal completed almost three months before we had expected it to,” said Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London. “That means they may start recording earnings from Rosneft in the second quarter.”

BP has promised investors that it will offset the dilution to the company’s earnings per share from the deal. Chief Financial Officer Brian Gilvary said in October that BP may buy back at least $4 billion of BP stock.

The London-based producer got 12.8 percent of Rosneft and bought an additional 5.7 percent for $4.87 billion from state holding Rosneftegaz in the deal, on top of a 1.25 percent stake it already owned.

The deal gives BP “a wonderful opportunity to forge a new partnership with a great Russian oil company,” Dudley, who is also a member of Rosneft’s steering committee on the integration of TNK-BP, said in the statement.

Rosneft rose 2.1 percent in Moscow, the most since Feb. 13, to close at 242.44 rubles.

BP and Rosneft will consider opportunities for joint work on “standalone projects, both in Russia and internationally,” according to the statement.

TNK-BP Dividends

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.

Today’s deal will see Rosneft, which has a market value of $83 billion, overtake PetroChina Co., Asia’s largest oil company, in crude oil production.

Putin met with Dudley and Sechin in his residence outside Moscow, congratulating the executives on the deal’s completion, Interfax reported.

The sale of the stake in TNK-BP gives Alfa, Access and Renova, the shareholders of the AAR group, an opportunity “to capitalize on major new opportunities in Russia and around the world,” according to an e-mailed statement.