BP reaches $26bn deal with Russian oil titan Rosneft

State-owned champion becomes world’s largest oil producer.

BP
Photo: Getty

BP today agreed to sell its 50 per cent holding in its Russian joint venture TNK-BP to Rosneft for a cash-and-shares deal worth a reported $26.8 billion (£17.8bn).

In a statement, BP announced it would receive $17.1bn (£10.7bn) in cash and an initial $9.7bn (£6bn) in shares worth a 13 per cent stake in Rosneft.

BP declared it would reinvest a further $4.8bn (£3bn) of the windfall into purchasing a further 5.7 per cent stake from the Kremlin, boosting its overall holding to just under 20 per cent.

As part of the deal, BP will also be given two seats on the Russian company’s nine-person board.

“This is an important day for BP. Russia is vital to world energy security and will be increasingly significant in the years to come”, announced BP chairman Carl-Henric Svanberg.

“Rosneft is set to be a major player in the global oil industry. This material holding in Rosneft will give BP solid returns”, he added.

The landmark deal is seen as a favourable exit for BP from what has been lucrative but testing venture. The dysfunctional relationship between BP and its erstwhile partners AAR – a consortium of Soviet-born oligarchs – came to a head in 2011, when the group attempted to block a joint Arctic drilling venture between BP and Rosneft.

Furthermore, BP’s 20 per cent stake in Rosneft could go some ways towards securing the company’s future in Russia, particularly in securing favourable Arctic and North Sea deals.

“BP intends to be a long term investor in Rosneft – an investment which I believe will deliver value for our shareholders over the next decade and beyond”, said BP chief executive Bob Dudley.

However, there are concerns that BP will have little meaningful leverage over the Kremlin-owned Rosneft, despite its presence on the company’s board of directors.

Accompanying the deal, Rosneft released a statement reiterating its intention to purchase the remaining 50 per cent stake in TNK-BP from AAR. The $28bn cash deal (£17.5bn) – expected to be announced on Thursday – was preliminarily agreed upon last week, with both parties signing a Memorandum of Understanding on Tuesday.

With full ownership of BP-TNK, Rosneft would control almost half of Russia’s total oil output, producing in excess of 4 million barrels of oil and gas per day – 1.7 million more than US-owned Exxon Mobil.

However, the transfer of a considerable slice of Russia’s private oil production into state hands raises profound political concerns. Before the BP deal, the Kremlin held a 75 per cent stake in the energy giant and Igor Sechin – the company’s CEO – currently serves as Vladimir Putin’s deputy prime minister.