Is Bob Dudley, BP‘s chief executive, on the brink of a negotiating triumph? That’s the way his fans will tell the tale if, in the next week or so, BP receives and accepts a cash-plus-shares offer from Rosneft for its 50% stake in TNK-BP.
The deal would be hyped as terrific for BP for several reasons. It would end the troublesome alliance at TNK-BP with the oligarchs of AAR. And BP’s future in Russia would be secure since the share-based element of the sale would equate to a stake of 10% or so in Rosneft, a platform from which to strike exploration alliances with the country’s state-backed oil champion.
If that’s the way the plot goes, the likely losers are the oligarchs. Separately, AAR has agreed in principle to sell its own 50% stake in TNK-BP to Rosneft for $28bn. But, crucially, the billionaires don’t have a firm deal – they have merely given Rosneft something closer to an option to buy.
If Rosneft bags BP’s stake first, AAR may find that that option is left to expire. The oligarchs would then find themselves in a 50/50 partnership with Rosneft, aka the Kremlin, the very position they wished to avoid. Their problem seems to have been a lack of ready funds to bid for BP’s stake and thus take 100% control of TNK-BP themselves. Raising a few tens of billions of dollars in a hurry is not easy, especially if half the possible lenders are already on the Rosneft ticket.
Dudley will not shed tears of sympathy if the oligarchs find themselves with that strategic headache But the critical question he must answer is whether a tight embrace with Rosneft is really a trouble-free route to riches for BP.
There are reasons to be sceptical. Rosneft shares have gone nowhere for years and BP may soon own 10% of them, as junior partner to the Kremlin, where the outcome of tomorrow’s power struggles is anybody’s guess. If BP shareholders wanted to own Rosneft stock, they don’t need Dudley to act as their fund manager. Small strategic stakes are commonplace in the oil industry but 10% is not small.
The counter-argument is that BP can inject greater management and drilling expertise into Rosneft, and thus help to create a revival. Well, we’ll see. At best, it’s a long-term bet and rests on the notion that BP simply has to be in Russia to retain a seat at big oil’s top table.
Given a clean choice, though, would BP shareholders rather bank their winnings from TNK-BP (a very successful adventure, despite the rows in recent years with the oligarchs) and wave goodbye to Russia? Many, one suspects, would. But a pure cash proposal from Rosneft does not appear to be on the table. That’s a pity.