Despite being highly profitable, the TNK-BP partnership between
BP
(
quote
) and Russian oligarchs represented by AAR has been dogged by
constant squabbling, and is set to dissolve imminently.
State oil company Rosneft (
RNFTF
,
quote
) is poised to swoop on both sides' assets.
[caption id="attachment_74026" align="alignright" width="300"
caption="Rosneft plant in Vankorneft, Eastern Siberia"]
[/caption]
So Russia drives another global oil company from its soil --
but wait, this time is different. The BP partnership with the
local oligarch team has been contentious for years.
AAR has signed an outline agreement to
sell its half of TNK-BP to Rosneft for $28
billion
, according to Upstream Online, valuing the venture at $56
billion. The sale is shaping up to be the
industry's second-largest deal ever, after Exxon Corp.
bought Mobil Corp. in 1999, and the largest ever acquisition by a
Russian company.
Rosneft, led by deputy prime minister and Vladimir Putin crony
Igor Sechin, has now submitted a bid today to buy the remaining 50%
of TNK-BP from BP for a mix of cash and shares.
Emerging Money co-founder and CNBC
Fast Money
contributor Tim Seymour comments that, "Rosneft is a fantastic
multi year play - that's right, multi year play. Exxon will be
working with them in the Arctic and corporate governance will
actually increase, though there will be no dividends in the near
future."
BP will sorely miss the production, cash-flow, and reserves that
TNK-BP represents. The venture accounts for some
29% of BP's production and 27% of its reserves
, reports
The Telegraph
, meaning a BP without its stake in the venture will be much
diminished. The nine-year partnership has paid BP $19 billion
in dividends, and BP only decided to try to sell its own stake
after relations with AAR became impossible.
But a stake in Rosneft will allow BP to maintain a presence
in Russia and its newly opening Arctic exploration areas.
Rosneft gains from this hugely, but in the short run it will
need to leverage up big time to do it. The acquisition of both
halves of TNK-BP, if the negotiations are successful, will roughly
double the size of the company
. It will also greatly enhance the power Sechin, a leader of a
faction of former intelligence and military officers in the Kremlin
known as the "siloviki," or the strong ones, notes the
New York Times
.
Bloomberg reports that Rosneft's acquisition of all of TNK-BP
may lead to a review of whether state support is sufficient to
maintain the oil producer's investment-grade rating, Fitch
Ratings said yesterday.
Absorbing TNK-BP will raise Rosneft's oil and gas production to
about 4.5 million barrels a day, matching Exxon Mobil Corp (
XOM
,
quote
).
BP and Rosneft are no strangers. BP chief Bob Dudley tried to
forge an alliance with Rosneft last year to drill untapped
Arctic reserves before it was blocked by AAR. The British oil
company already holds 1.25% of Rosneft after buying about $1
billion of shares in its 2006 initial public offering reports
Bloomberg.
