Will BP be bruised by Russian bear?

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As I understand it, the reason there has been a delay in the announcement of BP's sale of its half share in TNK-BP to Rosneft is that the deal is significant enough to require the formal approval of Vladimir Putin.

Which is expected from the president of Russia in the course of today, probably this morning. But oil executives are incredibly superstitious about taking any future event in Russia for granted.

As and when it happens (probably later this morning) this will be more than just a sale. It represents the establishment of a new partnership between BP and Russia's biggest energy company, with - as I mentioned last week - BP acquiring a stake in Rosneft of just under 20% (a big chunk of the sale price, of around $27bn, will be in the form of Rosneft shares).

The transaction should be seen in the context of Rosneft's gradual privatisation and its ambition to be seen as one of the world's most powerful oil companies. In that context, Rosneft wants access to BP's engineering skills, its technology, its financial controls, its management expertise and - perhaps most important as it seeks to raise capital from international investors - its approach to governance.

In spite of all the mud hurled at BP during and since the Macondo oil-spill debacle in the Gulf of Mexico, BP would still be seen by shareholders as a model of transparency and communication compared with most Russian companies - and Rosneft apparently wants a bit of that to rub off on it.

For BP, the rewards - if all goes roughly to plan (ahem) - would be opportunities with Rosneft to tap into Russia's vast energy reserves and the probability that the Rosneft stake will become more valuable as this vast lumbering company becomes more efficient and more highly rated by the global investment community.

On this view of what the deal is all about, BP executives are bound to be invited on to Rosneft's board and executive committees. For me therefore a test of the seriousness and depth of the partnership between the companies will be the precise number of BP people who become Rosneft directors and the structures put in place for sharing knowledge and skills.

All that said, some BP shareholders regard the board as bonkers to be even contemplating hugging this great Russian bear, having been pretty bruised in recent years by skirmishes with BP's current Russian partners, the AAR collective of billionaires who jointly own TNK-BP.

But BP's board believes it was unrealistic to contemplate getting nothing but cash for its enormous Russian asset in any sale; and if BP has to have some kind of stake in Rosneft, it is better to have a bigger stake that confers more influence and (perhaps) the opportunity to account for some of Rosneft's reserves and production in its own reserves and production.

BP is doing a deeply unfashionable thing by sticking with Russia at this juncture. But the smartest investors would probably say that the big rewards come from investing when the world is shouting at you to take the money and run.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 75.

    "JCisJD don't get so het-up about oil or gold for it is water that will be king eventually"

    Ahhhhhh "het up" interesting choice of words "dear", just making a point my love...hows that sounding, better?

    Anyway back to your water point...Well OF CAUSE water, food, are vital but right now they, LIKE OIL (read again previous quote) are controlled by the monetary system which is at war, that SIMPLE!

  • rate this

    Comment number 74.

    72 Ian

    UMMM thats very selective! Take a look at gold over the last 10 years, I do believe it was $200 PO in 2001!

    Since it has been manipulated down, by those trying to hide what is happening to the $ it has actually bounced back over the last 2 months by over 5% WHY?;

    .FACT Russia is doubling its reserve as is China! + 16 Aug 12 – Why Is Soros Selling So Much Stock & Buying So Much Gold?

  • rate this

    Comment number 73.

    if we could change the 'dg' in badger to 'nk'........
    it's black and white , innit?

  • rate this

    Comment number 72.


    "Smart money" going into gold? Is that why gold has been stuck at under $1,800 per oz level for over a year now? It has been going down lately, actually. It's not gold but commodities that attract "smart money" (i.e.bankers and spivs flushed with QE) this year - just watch the prices of crops...

  • rate this

    Comment number 71.

    BP have played a blinder here, for in one fell swoop they have turned a bad situation into a major opportunity with little or no exposure to risk. All they need now is to finalise their compensation deal all all things will be rosy and you will see them declaring large profits once again.
    JCisJD don't get so het-up about oil or gold for it is water that will be king eventually.....


Comments 5 of 75



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