The transaction with Rosneft, the oil company in which the Russian state owns a 75% stake, could be confirmed Mondayand will involve BP selling its stake in the profitable but problematic TNK-BP joint venture it forged in 2003 to the state-controlled company.
Under the terms, Rosneft is likely to become the biggest stock market listed oil company in the world while BP will become the second biggest investor in the company after the Russian state.
BP is expected to end up with a stake of as much as 20% in Rosneft, securing a major presence in the biggest oil and gas province in the world, and taking at least one seat on the board of the company which is led by an ally of the Russian president, Vladimir Putin.
The final details of the much-anticipated deal were being hammered out there was no certainty that all the intricacies – particularly the politics – would be ironed out during the trading hours of the London stock market.
The transaction is crucial to BP as it provides an exit from the TNK-BP venture which has posed a series of difficulties for the British company, including the departure of Bob Dudley from Russia in 2008 when he was head of the venture. It has required $8bn of investment by BP which in turn has taken out $19bn in dividends. Dudley, now chief executive of BP, has told his board that he backs the cash and share deal for the 50% TNK-BP stake which will eventually allow him to hand out billions to BP shareholders.
Rosneft is also expected to buy out the other half of the TNK-BP joint venture from the local oligarchs known as AAR, which had previously prevented BP from taking a larger stake in Rosneft.
BP will receive between $10bn and $14bn in cash from Rosneft and take shares in the Russian company in which it already owns a 1.25% stake following the partial sell-off in 2006.
The Kremlin owns 75% of Rosneft and while there has been speculation that it will reduce its stake to as low as 50% plus one share, this is yet to happen. Igor Shuvalov, Russia’s deputy prime minister, said last Friday that the government would consider further privatisation in an attempt to soothe any concerns among BP investors about the influence of the Kremlin over such a crucial part of the UK oil company whose share price is yet to recover from the Deepwater Horizon in the US disaster in April 2010. BP gets a quarter of its production from the existing Russian venture.
Dudley’s Rosneft counterpart, Igor Sechin, is a former spy who flew to London last week to take control of the long-running negotiations and whose company has long been attractive to BP. In January 2011 BP and Rosneft announced a share swap to enable them to explore in the Russian Arctic until AAR, BP’s existing partner in Russia, blocked the transaction. BP’s technical expertise is likely to be essential if the Russian Arctic is to be explored, although this is likely to incur the wrath of environmental campaigners.
BP, which declined to comment on Sunday night, is also keen to get more expertise from Russia, a market which produces 10m barrels of crude oil every day, and is considering whether to appoint a Russian national to its board. An announcement on the identity of any new board members is not thought to be imminent.