Bob Dudley will recommend BP accept a cash and share deal worth more than $26bn (£16bn) from Rosneft for its Russian business at a board meeting on Friday.
The move would mean a partial retreat from the biggest oil and gas province in the world but could trigger a big payout to BP shareholders through a special dividend.
It would also tie the British oil group into an embrace with the Kremlin as Rosneft is predominantly state-owned though some of its shares are listed. Dudley, the BP chief executive, held talks in London on Thursday with his Rosneft counterpart, Igor Sechin, after a formal offer from the Russians was received ahead of a 9am deadline.
The exact details of the tie-up under which BP sells its 50% holding in its TNK-BP joint venture were still being worked on but it looks as if Dudley is willing to take a 15% share in Rosneft with the rest being handed over in cash.
The BP board will consider the offer on Friday afternoon when Dudley will talk positively about the benefits. No detailed consideration has gone into how any Russian windfall – likely to be more than $15bn – will be used but a special dividend is one of the top options.
Shareholders in BP have had a hard time since the Deepwater Horizon disaster in the US Gulf in 2010 and the stock remains 30% lower than prior to the blowout.
BP was not willing to comment on the bid. A spokesman for the British company would only say: “We are considering our options including any offers we may have received.”
The purchase of the BP stake by Rosneft will make it the biggest publicly listed oil company in the world – above Exxon – if as expected it also buys the other 50% of TNK-BP from a consortium of local oligarchs known as AAR for a reported $28bn.
But there are fears in Russia that a full takeover of TNK would strip the country’s strategic oil sector of competition and efficiency. “This is the restart of a process of re-nationalisation of the oil industry which was suspended several years ago,” said Vladimir Milov, a former deputy energy minister. Rosneft was a middling oil company until it swallowed the main assets of Yukos after the company was forced into bankruptcy following the jailing of its boss, Mikhail Khodorkovsky.
“This is a quite damaging for the situation in the oil industry. State domination has never brought about any positive results or major investment in the development of new greenfields, with a few exceptions, nor increasing the efficiency of the oil industry,” he said. The deal would probably also add to Rosneft’s heavy debt.
“It is very difficult to find economic advantages in the further monopolisation and renationalisation of the oil industry, which will again heavily leverage Rosneft,” Milov said. “That is not what Rosneft needs right now – what it needs is money to invest in new greenfields in the Arctic and elsewhere.”
Marat Atnashev, a vice-president at Evraz, a major metals holding, said the deal would bring positive results for those involved – BP, AAR and Rosneft. “The only loser, surprisingly, seems to be the Russian economy,” he wrote.
“After the deal of the century is done, we will get another consolidated, practically monopolised industry,” Atnashev wrote.
Rosneft is keen not only to get control of production that accounted for almost a third of BP’s total crude output and around 10% of its profits but also BP’s technological expertise as it moves into drilling the Arctic. BP for its part is keen to exit a highly troubled TNK relationship with AAR but does not want to lose a foothold in such an important hydrocarbon province.
There is particular interest in the Russian Arctic where the Kremlin and Rosneft are keen to explore and develop. But any involvement by BP in drilling the pristine waters of the Arctic would infuriate environmental campaigners following the Deepwater Horizon accident.Greenpeace recently took its first direct action against a Russian company – part of Gazprom – which was drilling in Arctic waters. BP signed an earlier Arctic exploration and share swap deal with Rosneft which fell apart because of opposition to it from its TNK-BP partners from AAR.
Dudley used to be chief executive of TNK-BP but was removed from his job and had to leave Russia after a campaign against him, which commentators put down variously to AAR and even the Kremlin.
BP claims it is not interested in the TNK sale to raise money for the Deepwater Horizon fund but to use the cash for other purposes.
BP is still facing a claim of gross negligence from the Department of Justice in the US courts although the company is confident it can fight this off. BP has been selling assets all over the world to build a $30bn war chest to help pay off expected claims and liabilities resulting from the Gulf spill.