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Oligarch says will sell to BP at right price

Robert Peston | 08:48 UK time, Tuesday, 26 April 2011

My colleague Tanya Beckett has conducted a rare and fascinating interview with Viktor Vekselberg, one of the billionaire oligarchs who co-own TNK-BP with BP - and who have fallen out with BP over BP's desire to form a business relationship with Rosneft, Russia's largest energy group, which would involve BP and Rosneft taking stakes in each other.

BP logo at garage

It implies, perhaps for the first time, that there may be a solution to a dispute that has damaged BP's reputation and jeopardised the value of its very substantial assets in Russia.

Because of the tensions that have arisen with AAR, the group that represents the oligarchs, BP in collaboration with Rosneft would dearly love to buy AAR's half share in TNK-BP. But their offer of $27bn for 50% of TNK-BP, which values the whole of TNK-BP at $54bn, was rejected earlier this month.

All may not be lost for BP, however. Mr Vekselberg suggests that a sale is possible. He tells Tanya Beckett:

"Of course it can be happen, for sure. If it will be [an] interesting proposal for us according to our understanding of (the) valuation of this company, of course we can accept. So far we have not received this."

So what would be an "interesting" valuation of TNK-BP? Well those close to the oligarchs say that they value TNK-BP at more than $70bn.

It's not clear BP and Rosneft are prepared to pay as much that. The difficulty for BP is that if it fails to reach an accommodation with Mr Vekselberg and his colleagues on price, then it will be stuck in a difficult place - because BP will have been publicly humiliated by the failure to consummate the Rosneft deal and will somehow have to rebuild relations with AAR in order to continue to extract billions of dollars in dividends from TNK-BP.

BP's partnership with AAR is in tatters, as Mr Vekselberg makes clear, in emotive terms, because of AAR's conviction, upheld in arbitration proceedings, that BP's proposed deal with Rosneft breached its contract with AAR:

"The picture is really simple. TNK-BP was created eight years ago, 2003. It was created like [a] joint venture between Russian shareholders and BP, huge global player... The company grew very active; it's now one of the best companies - not just Russian but internationally, because we have investment outside Russia...
And really I personally was surprised, I was surprised why BP decided to do something which [was] not according to our shareholders agreement. I am not surprised why BP would like to do this but I am surprised why they did it without any consulting or even just like, just inform us about that (sic). I was very upset, I am still upset even now".

Mr Vekselberg says he is "not so interested in money". The billionaire
adds: "I have enough money, for my life, for my family, for all that".
But "we are businessmen, we are not ideological or something", so of course a sale to BP and Rosneft "can happen".

So what would occur if BP and Rosneft were to make him several billion dollars richer? "I am already very upset" he says "but I will [be] double upset if I have to decide to sell. It's because I dedicated for this company almost like 15 years".

These remarks by Mr Vekselberg are a sign that the impasse over the purchase by BP and Rosneft of AAR's stake in TNK-BP can be overcome.
It offers hope to BP, perhaps for the first time, that it may be able to buy AAR out of the joint venture by the time of the May 16 extended deadline set by Rosneft.

But here's the question? Is the price that Mr Vekselberg and his fellow billionaires will accept one that BP's owners will see as acceptable?

Some of them are already dubious about the terms of the new partnership it wants to form with Rosneft. At a time when BP remains financially stretched by the costs of the disaster in the Gulf of Mexico, BP's shareholders won't want it to further enrich Mr Vekselberg more than is strictly necessary.

For more on the Vekselberg interview, see Russia Business Report.


  • Comment number 1.

    The trouble with Russians is that they speak in riddles

  • Comment number 2.


    BP is (financially and economically) 'interesting in that for many of us the shares from part of the investments of our pension funds and the flow of dividends provides those that manage these funds, and provide annuities, a means of paying our pensions.

    These deals in the former USSR give BP (shared) access to the vast natural resources of the region and so may provide financial stability ion the long term - however this all rather depends on the rule of law being rather more strictly enforced in the firmer Soviet block than it has in the past, and indeed than it is at present.

    I think I will not be alone in wondering just how the "the billionaire oligarchs" will manage to hang onto their assets in the face of developing demands in the former Soviet block for a fairer and more legally equitable system over time and if so I wonder if BP is selling us (the investor) something that it may not be able to deliver - even if it has watertight contracts. (I note you wrote above: 'what would be an "interesting" valuation of TNK-BP?') It would be an error for us to overlook this nascent 'problem'.

  • Comment number 3.

    Businessmen are not cold, money-making computers. They can become emotionally involved in their enterprises. They can become offended, feel betrayed and want revenge.

    Mr Vekselberg and his colleagues want to humiliate BP. And they are succeeding.

  • Comment number 4.

    Emotion means that he is looking for compensation as well as the market price. It is a pity BP does not have a premier division football team they can offer Mr Vekselberg to make him feel better.

  • Comment number 5.

    #2 John From Hendon makes the key point that there is a large element of political risk in BP's investments in Russia. However, that is the case in varying degrees in almost every oil investment because states own the licenses, the legal systems etc required to operate (i.e. explore, produce and export hydrocarbon).

    Of course its not just oil as other types of business have the same issue but perhaps not to the same extent as applies to oil as it is such a valuable commodity and needs to be produced and exported across infrastructure that can be seized at will or taxed or otherwise approriated by a state that chooses to do so. Only two things stop this happening every week everywhere. Firstly some states (by no means all) see big oil cos as a useful source of both technical and financial capital so dont want to behave in a way that would preclude such an investment in the furture. Secondly the buyers of the end product (ie US and others) have economic leverage and a bunch of tanks aircraft carriers etc so the ability to get mean if the state with the oil reserves doesnt want to play ball. Neither of these levers are likely to work as well with Russia as with some other states - in fact Russia has a previous history of using the oil and gas supply politically by demonstrating a willingness to turn of the taps - so there is certainly a risk even if the Russian state remains a rock solid stable entity.

    The question is how would you price the risk and is it on ballance worth the potential reward of the access to reserves ?

    Answer - very difficult to price the risk -

    One would therefore hope that BP's board have done a better job this than they seem to have done in managing their relationship with AAR.

  • Comment number 6.

    The point about political risk is well made and, on a wider scale, is the reason that the banks will be very cautious about jumping ship.

    But the value and the risks are irrelevant. After a series of disasters this has more to do with the BP board saving face.

  • Comment number 7.

    Mr Vekselberg, isnt this the guy that the Swiss government had dealings with over share price manipulation ??? among other international problems he has had over his take on how business should be done.

    At some point the Russian people are going to oust these oligarchs, who in the name of the Russian people have amassed vast personal fortunes, it will take time but it will eventually happen.

    Where would that leave BP or any other company with Russian investments then ??? it would be wise in my opinion not to get too heavily involved in Russia, but business is business i suppose morals and ethics dont come into the equation.

  • Comment number 8.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 9.

    Its nothing whatsoever to do with hurt feelings or emotion, its about loss of face pure and simple. Reputation as being strong in business is vital to impose their will on these markets, still emerging from the soviet past. Whatever happens at international level is a lot more "fluid" internally. And they know this because that's how they accumulated their wealth in the first place. A show of strength is vital to maintain their position of influence.

    Interesting point John from Hendon regarding the likelihood of the state imposing control or severe restrictions on the capitalisation of resources vital to the state. At some point the resources will be restricted to the point that national security will overtake the will of the markets. Of course the proposed valuation might also reflect the real value of the dollar, or its perceived value in the coming months.

  • Comment number 10.

    #7 AqualungCumbria

    You are right. These oligarchs don't realize it yet but they are living on borrowed time.
    To keep their position they must put in place powerful managers and also toady up to politicians.
    And that is where they will come unstuck.
    Some day those people will do without them.
    I have no idea when.
    Just like I have no idea when Mugabe will be ousted.
    It will happen though.

  • Comment number 11.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 12.

    Deal not yet dead in the water...
    Rosneft has agreed to BP’s request to extend the deadline for the companies’ share swap agreement by ONE MONTH (from April 15th). This will be pending the final decision of the Arbitration Institute of the Stockholm Chamber of Commerce.
    This allows temporary action previously blocked in BP’s existing joint venture with Russia's, TNK-BP.
    Rosneft President, Eduard Khudaynatov: “We hope to see the dispute over the Russian Arctic offshore projects between TNK-BP’s Russian and British shareholders resolved in the international tribunals.”

  • Comment number 13.

    Robert, well thank you for reporting in your own inimitable way.

    Actually, it doesn't matter a toss what any oil companies do, according to ordinary working people getting to and from work on a minimum wage. The cost of food up by 20% on top of UK tax on fuel duty passed on to poorest who are most affected.

    To anyone who dares to say that food is zero rated for VAT - back off - everything is subject to 20% VAT and that cost ends with the consumer picking up the tab!

  • Comment number 14.

    Food is zero rated for VAT.

  • Comment number 15.

    Okay, Robert, let me put this situation in another way altogether: In my opinion, Russia wants no part of BP and the crocodile tail it drags around with called Macondo.
    In fact, Russia really wants Rosneft & LUKoil, to plan the work, set up the corporate structure, etc. In fact Russia wants this done ASAP, like August 1, 2011.
    Both companies are state companies. Both will prepare proposals on the projects quickly, as in one month after forming ventures. If any billionaire is going to be involved it will be Vagit Alekperov - LUKoil's billionaire CEO.
    Alekperov's counterpart at Rosneft is Eduard Khudainatov. The gentlemen have agreed to share export infrastructure in the northern Nenets region and cooperate on natural-gas transportation from
    - Rosneft's Vankor deposit and
    - LUKoil's Bolshekhetskaya Depression fields.
    Where in this tight little grouping can you see any room for BP, except out the door?
    The companies may combine to work untapped oil fields in the Nenets region by building a unified transit network to LUKoil's export terminal at Varandei on the Barents Sea.
    Where in this tight little grouping can you see any room for BP, which will never be invited in the door.
    LUKoil agreed to buy a 25% stake in a venture with Bashneft to develop the Trebs and Titov oil fields in the Nenets region and did so April 15th. A previous project between LUKoil and state-controlled Gazprom Neft to seek resources in the same region may collapse as Rosneft looks to be a stronger partner.
    Yet, still - where in this tight little network can you see room for BP, except back to less stringent and less careful oil exploration and drilling?
    LUKoil and Rosneft are also looking into exploration in the Black and Caspian seas..
    LUKoil and Rosneft are partners already in the North Caspian project.
    The companies also have a venture to explore and develop the Temryuksko-Akhtarsky block in the Azov Sea. The new ventures would target other reserves, according to LUKoil.
    If something seems to be subtly whispering in your ear that BP is not welcome, you may just be hearing the message correctly.
    How exactly this is going to work out,'ve got me!

  • Comment number 16.

    14. At 17:42pm 26th Apr 2011, Abysmillard wrote:
    Food is zero rated for VAT.

    Correct, and all the VAT paid along the supply chain is reclaimed.

  • Comment number 17.

    @ 16. At 08:24am 27th Apr 2011, AnotherEngineer wrote:

    >> 14. At 17:42pm 26th Apr 2011, Abysmillard wrote:
    >> Food is zero rated for VAT.
    > Correct, and all the VAT paid along the supply chain is reclaimed.

    Even if you don't use it as food. My car runs well on corn oil, but it smells like a chip shop!

  • Comment number 18.

    #16. At 08:24am 27th Apr 2011, AnotherEngineer wrote:

    "Correct, and all the VAT paid along the supply chain is reclaimed."

    Non corporate workers in the supply chain cannot reclaim VAT. So any increase in VAT results in hardship for those already being paid low wages.

  • Comment number 19.

    This together with the banking catastrophe shows us that the truth is that Governments now control nothing. Multinationals now control Governments and strategically any sale of British Petroleum would be a disaster for Britain. We are not far now from the the terrifying concept of multinationals controlling nations. What with Bill gates on the information side, Oil and Gas controlled by Rosneft and the banking system telling us we can all go to hell there's not much left for any Government to control.


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