It’s goodbye to the oligarchs and hello to the Kremlin. That seems to the gist of the latest twist in BP‘s Russian adventure. BP, it is reported, will sell its half-share in TNK-BP to state-backed Rosneft for $15bn in cash plus $10bn in shares. This, it is assumed too casually, represents an excellent trade for BP. A more hard-headed appraisal would be: if things go well, it’s the least bad option; if things go badly, BP will have leapt out of a Russian frying pan into a Russian fire.
The logic behind exiting TNK-BP, Russia‘s third largest producer, is obvious. The oligarchs at AAR have proved troublesome partners in the joint venture, skillfully squashing BP’s plan last year to explore the Arctic with Rosneft. And, since the breakdown in the relationship is permanent, a clean break is a natural solution.
Fine – but the details of the deal with Rosneft will be critical. BP shareholders are unlikely to applaud wildly if their company really does intend to accept $10bn of Rosneft paper as part-payment for the TNK-BP stake. If they like the price of Rosneft shares, they are free to buy a few themselves rather than sub-contract the task to BP chief executive Bob Dudley.
The company’s probable explanation, of course, will be that BP and Rosneft are forming a new and improved strategic alliance in the Arctic. And maybe they are, since Russia clearly still has an appetite for western drilling expertise (BP’s Macondo disaster notwithstanding). But remember the context in which this deal is being struck: Dudley is desperate to get out of the TNK-BP venture and Rosneft is the only buyer in town. Easy riches from the Russian state are unlikely to be on offer.
Instead, BP could be signing up for another long campaign at a time when the outcome of power struggles in Moscow look more unpredictable than ever. BP’s gamble may prove successful – and big oil companies, it is argued, have to make such political bets to reinvent themselves. But, equally, it is not hard to imagine a moment in the future when BP’s investors reflect wistfully on the days, all too brief, when TNK-BP was a beautiful cash machine.