LONDON – British energy major BP Thursday announced plans to buy back $8 billion of shares in Russia’s Rosneft from investors after completing the sale of 50 per cent of Russian oil producer TNK-BP.
In the first buyback since 2008, it will see BP return to the original amount invested in the joint venture 10 years ago, the London-based company said in a statement.
The transactions, in line with the terms announced in October 2012, will result in Rosneft completing the process to fully acquire TNK-BP through taking over BP’s 50 per cent interest in the Russian joint venture, in exchange for $16.65 billion in cash and 12.84 per cent of Rosneft shares;
For BP, it would result in receiving net $12.48 billion in cash, including a TNK-BP dividend of $0.71 billion, and 18.5 per cent Rosneft shares.
The transaction also involves OFSC ROSNEFTEGAZ, an independent subsidiary of Rosneft, selling 5.66 per cent stake in Rosneft to BP in return for $4.87 billion in cash;
In October 2012 BP and Rosneft had entered into an in principle agreement for the sale and purchase of BP’s 50 per cent interest in TNK-BP for $17.12 billion in cash and 12.84 per cent of Rosneft shares.
Following adjustments in accordance with the terms of the agreement excluding a $0.71 billion dividend received by BP in December 2012 from TNK-BP, Rosneft Friday paid BP a final amount of $16.65 billion.
BP has used $4.87 billion of the cash consideration to acquire 5.66 per cent of Rosneft shares from ROSNEFTEGAZ. This amount includes the adjustment from the offer date to completion according to the terms of the purchase agreement.
“As a result of these transactions BP has received $12.48 billion net in cash (including the $0.71 billion dividend received in December 2012) and, together with its existing 1.25 per cent shareholding in the company, now holds a 19.75 per cent stake in Rosneft, Russia’s largest oil company,” the British energy major stated.
Rosneft President and Chairman of the Management Board Igor Sechin said: “We are delighted to close this transaction ahead of schedule and would like to thank our partners in BP for their cooperation throughout the process. We welcome BP as a strategic investor in Rosneft and look forward to their involvement in forming the future strategic direction of the company through its representation on the Rosneft Board of Directors.
“We are closing the deal of acquiring BP’s share in TNK-BP earlier than we previously planned and we want to thank our partners from BP for their cooperation throughout the process.”
Sechin expressed happiness that BP has made a decision to remain one of the biggest investors in the Russian economy, thus admitting vast prospects of Russia’s oil and gas industry and Rosneft’s big potential.”
The investment by BP to acquire Rosneft stake is twice as much as Chief Financial Officer Brian Gilvary signaled last year would be enough to offset earnings per share lost from selling the stake in Russia’s third-largest producer
BP Group Chief Executive Robert Dudley said: “BP has invested in Russia for more than 20 years and for a decade we have been Russia’s largest foreign investor through our involvement with TNK-BP. We aim to continue that success with today’s transaction, which increases our stake in Rosneft and gives us a wonderful opportunity to forge a new partnership with a great Russian oil company.”
BP disclosed plans to “return to BP shareholders an amount equivalent to the value of the company’s original investment in TNK-BP”.
The British firm expects the share buyback programme to take between 12 and 18 months to complete.
Although BP’s involvement in the Russian joint venture has been lucrative, relations with its partners have often been fraught with disagreement. In 2011, the AAR consortium attempted to block a drilling joint venture in the Arctic between BP and Rosneft through the courts and the plan was eventually dropped.
As well as internal wrangles, BP employees at TNK-BP have fallen foul of Russian authorities.
While serving as head of TNK-BP, Dudley – now the head of BP as a whole – had his office bugged and raided by the police and met with onerous back-tax demands, legal action and visa problems.
He eventually fled the country in 2008.
But the tie-up with Rosneft will keep BP in Russia, allowing it to continue to explore and exploit the country’s vast energy resources, including in the Arctic region.