The bitter conflict between BP and its joint venture partners in Russia appears to be drawing to a close. Rosneft, the state oil giant, has agreed to pay a consortium of billionaire oligarchs $28-billion (U.S.) for their half of a 50-50 shareholding in the country’s third-biggest crude producer. It’s a good price for the oligarchs, and a good deal for BP, which owns the other 50 per cent of TNK-BP.
Rosneft’s offer, which would value the whole of TNK-BP at $56-billion, looks generous. Copious dividends mean the partnership’s main asset – a 95-per-cent stake in a Moscow-listed subsidiary – is worth about $50-billion, based on expected payouts, applying a reasonable cost of capital. An extra $6-billion for the joint venture’s other assets, including half of Russian oil producer Slavneft, looks fair considering Rosneft was the only likely bidder for the oligarchs’ stake.
The AAR partners should be happy to exit now at a good price. The alternatives – staying in a loveless marriage with BP or ending up the de facto junior partner if Rosneft bought the U.K. major’s stake – look less appetizing.
BP also scores in the deal. Rosneft’s offer is probably more generous than the valuation BP’s shareholders were ascribing to its half of the joint venture – BP’s shares rose 3 per cent on news of the deal. More important, AAR’s exit could clear the way for BP to finally strike a long-coveted strategic partnership with Rosneft.
It’s unclear what form the partnership might take. Until news of the AAR deal broke, Rosneft had been widely expected to offer a mix of cash and shares for BP’s half of TNK-BP. It may yet do so – Rosneft chief and Putin ally Igor Sechin was reported to be in London for talks with BP on Oct. 17. Financing a bid for the whole of the joint venture looks like a stretch, but Rosneft could try offering more shares than cash for BP’s stake. Or the two companies could decide to continue as 50-50 partners in the existing joint venture.
Either way, it could be a strategic coup for BP chief executive officer Bob Dudley. When the BP boss put its 50 per cent of TNK-BP up for sale in June, there was a very real prospect the U.K. major would end up leaving Russia altogether. Appearances can be deceiving in Russia. But a favourable outcome has never appeared closer.
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