BP: How close to Rosneft?

 
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It is pretty certain that BP will today be offered $28bn by Rosneft, the state-controlled Russian energy giant, for its half-share in TNK-BP (as much as anything at all is certain in this extraordinary soap opera).

You might think that being offered a tidy sum for an asset that has caused BP quite a few headaches in recent years is good news. And you would probably be right.

But for BP's board, the deal is not without its dilemmas.

Before we get on to those, I should point out for form's sake that BP's joint-venture partner, AAR - a collective of billionaires - has also been in the bidding contest for BP's stake. But it does not look as though AAR will bid, given that it has signed a memorandum of understanding to sell its holding to Rosneft too.

So it does look as though Rosneft will end up with control of TNK-BP - though whether it will actually buy 100% of this substantial oil producer is moot.

So what is the issue for BP?

It is not about the quantum of the sum being offered. At the current oil price, $28bn is in the right ball park.

The thorny question is about how much of the purchase price to take in Rosneft shares.

A number of BP shareholders just want out of Russia, and would like BP to take the entire consideration in cash.

That is not on offer. So the tension is over whether BP should take a bigger stake, of nearer 20%, or a smaller one, around 10%.

My strong sense is that BP's executives would like a larger stake. They don't want to be out of Russia and its enviable energy resources. And they believe - perhaps naively - they can have a constructive long-term relationship with state-controlled Rosneft, which after the takeover would be the largest oil-producing company in the world.

The counter-argument, held by a number of BP investors, is that BP would be giving spurious respectability to a company, Rosneft, with opaque and questionable governance, and that BP will have no meaningful influence over Rosneft, whether the stake is bigger or smaller. BP could end up looking like a patsy.

There is another factor for BP's board, if they are in a cynical frame of mind. Do they wish to be seen to be loaded to the gunnels with cash, when they are still being sued and pursued for fines and damages by regulators and investors over the Gulf of Mexico Macondo oil spill?

Anyway, BP's board will adjudicate on all this tomorrow and over the weekend. By next week we should know whether BP will become more or less bound into the assets and apparatus of the Russian state.

UPDATE 11:20 BST

My understanding is that Rosneft has submitted its offer for BP's half stake in TNK-BP, and its bid is a bit less than $28bn but more than $25bn.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 39.

    Actually, Russia is facing a decline in production, so the Kremlin is belatedly realising that it actually needs the expertise of the IOCs that they've been abusing for the past 10 years or so. This is especially true of developing the Arctic areas.

    On the other hand, BP are convenient scapegoats.

  • rate this
    0

    Comment number 38.

    The deal should benefit all parties. It is voluntary, no one is forcing them to do that. It will be better If BP and Rosneft form a joint venture, BP will have access to very promising projects in Russia, including the shelf.

  • rate this
    0

    Comment number 37.

    Robert, I think you'll find the word is actually spelled "gunwale"......unless of course you are referring to a small fish rather than the side of a boat.

  • rate this
    0

    Comment number 36.

    When I read this yesterday, I nearly made a facetious comment about taking the money and running before the Russian police started arresting TNK-BP executives.

    It appears that the arrests started today. There are some things about which one shouldn't joke, I guess.

  • rate this
    -1

    Comment number 35.

    Just you wait. The Russians will be BEGGING you to take BP's operations back after BP spills oil all over Russian beaches ;)

  • rate this
    +2

    Comment number 34.

    So, Alfa - the Russian partners in TNK - get all the cash. We get to share a bed with Mr.Sechin, the hardest of the hard men in Putin's inner circle. BP had a dreadful time with TNK as their Russian partner. Mr.Sechin will squeeze BP till they plead to sell out of their stake in Rosneft, for which Sechin will pay significantly less than he paid the TNK russians. Never be a minority in Russia.

  • rate this
    +3

    Comment number 33.

    I thought they (BP) wanted to distance themselves from the awkwardness of Russian business practices, aren't they just getting in deeper with this deal.

  • rate this
    0

    Comment number 32.

    market price discovery.
    bp needs a wide portfolio of over seas in vestments which will allow it to trade on skills and vast experience so adding value to its share holders US. SO LETS HOPE THIS COMES OFF

  • rate this
    +2

    Comment number 31.

    In 97, I Chaired a conference for the Adam Smith Institute .Subject "The prospects for the Russian Oil Industry"
    The overwhelming view was whilst profitability was good it would not be long before the Gov interfered in a greater way

    My closing speech included these words." The water is warm but very deep. "

    Swim at your peril
    I firmly believe those words are as true today as they were then.

  • rate this
    0

    Comment number 30.

    This is one of those occasions when you grab the money and run. For the simple reason once a deal like this goes sour it will never get sweet again.

  • rate this
    +1

    Comment number 29.

    interesting update Robert...so Rosneft wants complete control.
    The oligarchs did get the best offer (hey but what is $3bn dollars when you have billions anyway.
    Now watch out for the Russian bear, GAZPROM have a wodge of the world's gas, ROSNEFT the oil...
    time for UK to install solar panels and cut car use (very unpopular with voters however) PLZ NO NUCLEAR

  • rate this
    0

    Comment number 28.

    It is sad to read about the current problems at BP. At one time this company was a Flag ship for uk business throughout the world. Soley due to some very poor management and technical errors, the company is now on its knees.

    The Gulf of Mexico fiasco, was mainly due to poor planning and miss-handling the problem when the spill was discovered . "No proper risk assessment for a spill if it occured"

  • rate this
    +2

    Comment number 27.

    They should take the money then sell the shares ( as in #17 ) then get out of Russia and US (as in # 11) But I'm not a Politician or a Broker so I don't know the dangers of either option !! But I've done Business in Russia and never again !!!

  • rate this
    +2

    Comment number 26.

    They've been made an offer all right, one they can't refuse.

  • rate this
    0

    Comment number 25.

    Take the bigger stake, BP. Time flies & things change, but the population of the world is growing; the climate crisis & global economic crisis are compelling obstacles to human development. Only by giving British brains a stronger voice in the many daunting issues we must all find effective answers for, together, will there be any hope of averting worse crises. So go for it. R will heal with time.

  • Comment number 24.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 23.

    22.Wdmng?

    "America, Russia, what's the difference?"

    Haven't you been reading the propaganda? We like America and all she stands for (r on).

  • rate this
    +5

    Comment number 22.

    People are quick to point out that BP in Russia runs the risk of Putin and his cronies taking what they want from BP at will and leaving it out of pocket.

    But let's not forget that many independent reports found American darlings like Halliburton more responsible for the Gulf of Mexico spill and yet still BP suffered the harshest criticism and penalty.

    America, Russia, what's the difference?

  • rate this
    0

    Comment number 21.

    If I were BP I'd take a real close look at the infrastrure in intense detail, I'm guessing they'll perhaps not like what they find.....Indeed any failures wherever / whatever will put all those law suits their facing in good ole' US of A into perspective.....

  • rate this
    +1

    Comment number 20.

    Why any reputable business wants to deal in Russia is beyond me.

    The "brown envelope" is totally imbedded in their business culture, and when Putin et al feel like it, Russia will make life very difficult, and take what it wants without fear of any comeback (and difficulties are never their fault).

    Like UK Insurance companies in USA, UK energy companies in Russia get burnt. Learn!

 

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