Mikhail Metzel/AP - In this file photo, a plaque of Rosneft is seen outside its headquarters in Moscow, Russia.
BP has agreed to sell its half of a troublesome but lucrative joint venture in Russia to the state-controlled firm Rosneft for nearly $28 billion in cash and stock, the company announced on Monday.
The two-step deal will leave BP with $12.3 billion in cash, a 19.75 percent stake in Rosneft and two seats on Rosneft’s nine-person board.
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Rosneft, Russia’s biggest oil company, also announced that it had agreed separately to buy out the Russian partners in TNK-BP for $28 billion in cash, adding to Rosneft’s already extensive holdings.
The deal will extricate BP from TNK-BP, the joint venture with a group of Russian tycoons who were often at odds with BP over its management. Now the London-based oil giant will have a substantial minority stake in the politically well-connected Rosneft, whose chief executive is Igor Sechin, a former deputy premier and longtime ally of Russian President Vladimir Putin. The Russian state currently owns 75 percent of Rosneft.
“By becoming Rosneft’s undisputed principal Western partner — an arrangement endorsed at the highest levels of the Kremlin — BP solidifies its position in the largest oil-producing country and will be able to access exploration opportunities (including the Arctic) that few non-Russian companies get,” Pavel Molchanov, energy analyst with the investment firm Raymond James, wrote in a note to investors Monday.
At midday, BP’s shares were at $42.61, down 1.1 percent.
The deal will strengthen the position of Rosneft, already one of the world’s most massive state-owned oil companies, and bolster Putin’s policy of resource nationalism. The acquisition of TNK-BP, Russia’s third largest oil company, will give Rosneft control of nearly half of Russia’s oil production, Molchanov said. He added that Rosneft’s oil production would be twice as large as the next largest Russian oil company, Lukoil; 12 percent larger than Exxon Mobil’s; and 50 percent larger than Royal Dutch Shell’s.
The sale of TNK-BP also marks the end of a venture initially seen as a sign that Putin’s Russia was open for foreign investment. BP’s then-chief executive John Browne and Russian financier Mikhail Fridman signed agreements in the presence of Putin and then-British Prime Minister Tony Blair. A gala reception was held at the Kremlin Armory for 300 guests from the worlds of business and politics.
“This is state capitalism with joint ventures with foreign large companies, which is probably Putin’s new model,” Anders Aslund, senior fellow at the Peterson Institute for International Economics, said in an e-mail. He said that Russia’s leaders realize that improved output from older fields in West Siberia “is coming to an end and that most of the new oil must come from the Arctic offshore. They understand that only super majors can do this.”
But these new joint ventures are for specific exploration projects, with Rosneft clearly in corporate control. Rosneft already has such ventures with Exxon Mobil, Norway’s Statoil and Italy’s ENI to develop offshore areas. Aslund said BP would probably get a region to develop as well.
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