By SELINA WILLIAMS and JAMES MARSON
Russian energy giant OAO Rosneft on Monday reached separate agreements to buy the entirety of oil venture TNK-BP from BP and a group of Soviet-born billionaires, an acquisition that promises to reshape the Russian oil industry in favor of the state-owned company.
"The acquisition of 100% of TNK-BP represents a unique and compelling strategic opportunity for Rosneft," both in creating extra value in an enlarged company and in securing an alliance with an experienced international company like BP, the company said in a statement Monday.
Under the terms of the transaction, BP will receive $17.1 billion in cash for its 50% stake plus shares representing 12.84% of Rosneft, worth $9.7 billion on the bid date.
It will then use $4.8 billion of that cash to purchase an additional 5.66% of shares Rosneft from the Russian government, taking its total holding up to 19.75%, BP said in a statement.
Signing of the definitive agreements between BP and Rosneft is conditional on the Russian government agreeing to the sale of the 5.66% stake in Rosneft, BP said.
BP will get two seats on Rosneft's nine-person board as part of the deal and expects to be able to account for its share of Rosneft's earnings, production and reserves on an equity basis.
Rosneft also said Monday it has agreed "heads of terms" with AAR, the consortium that holds the Soviet-born billionaires' stake in TNK-BP, to acquire the other half of the company for $28 billion, without providing further details.
"This is a good, big deal, not only for the Russian energy sector, but also for the Russian economy," said Russian President Vladimir Putin, after a meeting at which he approved Rosneft's acquisition of TNK-BP in a meeting with the company's CEO, Igor Sechin, Russian news agency Interfax reported.
Rosneft will finance the transactions, which have a total cash value of $45.1 billion, from a combination of existing cash resources and new borrowings, it said. "No concessionary financing from government sources will be required," and Rosneft will sustain its dividend policy, it said.
The deal marks a historic shift in BP's presence in the key Russian oil market, freeing it from a turbulent joint venture with AAR and potentially giving it access to Arctic oil exploration rights that are widely coveted by companies seeking to replace dwindling oil resources elsewhere.
The transaction enables BP to reap a windfall from the sale of their stake in Russia's third largest oil producer, which they paid around $8 billion for in 2003, but which has returned around $19 billion in dividends.
The deal is also a vindication for BP CEO Bob Dudley, who suffered a major setback last year when his previous effort to partner with Rosneft was blocked by opposition from AAR, which holds the other 50% stake in TNK-BP.
"This investment builds on BP's track record of value creation in Russia. It is consistent with our strategy of deepening our positions in the world's most prolific oil and gas regions," Mr. Dudley said Monday.
A Rosneft takeover of TNK-BP would bring the Russian state's control over oil production to nearly 50% and mark a major milestone in Mr. Putin's reassertion of Kremlin control over the strategic oil sector, much of which was sold off in the privatizations of the 1990s to well-connected tycoons like AAR's owners.
Since Mr. Putin came to power in 2000, the tide has turned the other way in an industry the Kremlin depends on both as a source of international influence and more than half of all tax revenues.
Dow Jones Newswires