Rosneft closes in on TNK-BP as tycoons agree on exit

MOSCOW—Russian state oil company Rosneft was closing in on control of privately-held TNK-BP yesterday, sending its powerful boss to London for talks with 50 per cent shareholder BP after the tycoons who own the other half agreed to sell. Industry and financial sources in London, Moscow and elsewhere painted a picture of a potential three-way deal that could emerge over the coming weeks.

They said both the British oil company and the four Soviet-born tycoons could emerge with minority stakes in an enlarged Rosneft as well as billions of dollars in cash—all in exchange for a highly profitable company which has been valued at over US$50 billion.

The combined group would dominate Russia’s increasingly state-controlled oil industry, and would be producing well over four million barrels of oil and gas a day—more than US No 1 Exxon Mobil. According to two sources familiar with the matter, Rosneft agreed on Tuesday to pay the tycoons’ AAR consortium US$28 billion. However, financial sources said it was unlikely all of this would be in cash, especially if Rosneft intends to buy out BP as well.

Some US$15 billion could be met through a loan agreement Rosneft has been negotiating with international banks for weeks and it can get another US$3 billion from Russian banks, said the financial sources. However, “There is a point where raising debt would have a negative impact on Rosneft’s credit rating,” said one banker, while another said US$20 billion was the most Rosneft can borrow without putting a strain on its ability to refinance later.

Rosneft, AAR and BP all declined to comment, while a senior minister said Rosneft had not yet requested the necessary government approval for a deal. BP’s shares closed up three per cent on the news at 452 pence as investors digested the prospect its years of Russian difficulties could now be behind it.

Sechin flies in

BP’s decision in June to put its own stake up for sale put pressure on the oligarchs to sell their half of the business because, analysts said, the first to sell to Kremlin-backed Rosneft was likely get the higher price.

An exclusivity period during which only AAR could have bought BP’s stake expired yesterday, and Igor Sechin, the company’s CEO and Russian most powerful energy official, was visiting London yesterday for talks with Europe’s second largest oil company, according to a source familiar with his schedule.

BP has invited bids for its stake by this morning. With AAR looking to sell, it appears unlikely that it would submit a credible rival bid for BP’s stake in TNK-BP. Another source familiar with British company’s actions said that as of yesterday, BP had not received any offers for its stake.

Rosneft is widely expected eventually to secure overall control of TNK-BP, and a minority stake in an enlarged Rosneft for BP and its partners could create the appearance of serving Russia’s privatisation agenda, analysts and bankers say. A deal agreed by all sides could open the way for BP to revive a plan to explore in the Arctic in conjunction with Rosneft—a plan scuppered by the tycoons last year,

“I think that they go and buy out the oligarchs—and BP retains its stake in TNK-BP at least for now. Then BP becomes Rosneft’s strategic shareholder, and BP is free to go into the Arctic,” said one energy analyst with a Western bank who requested anonymity.

Reuters