British oil major BP is close to signing a share-swap deal with Rosneft to become a core shareholder in Russia’s largest state-controlled oil firm, Kommersant business daily reported on Thursday.
Rosneft is expected to acquire BP’s 50 percent stake in its troubled joint oil venture TNK-BP, while the British oil giant may get $10-15 billion in cash and over 12.5 percent of the Rosneft's stock to become Rosneft’s largest shareholder after the Russian government.
The Kremlin press office reported on Tuesday President Vladimir Putin had met with Rosneft head Igor Sechin, BP President Robert Dudley and BP Board Chairman Carl-Henric Swanberg.
“The sides discussed issues related to the continuation and expansion of BP’s presence on the Russian market, and also the prospects of cooperation with Russian companies,” the Kremlin press office said.
Swanberg’s presence at the meeting suggests he outlined the position of BP shareholders who must approve a possible deal, a Kommersant source said.
The participants in the meeting declined to give any further details, while Kommersant sources said the sides discussed the sale of BP’s 50 percent stake in TNK-BP, a 50/50 joint venture between the British oil major and the AAR consortium of Russian billionaires.
Rosneft is currently holding talks with banks to raise $10-15 billion in loans to finance the purchase and intends to buy half of BP’s stake (25 percent) for cash and swap the British oil major’s remaining 25 percent for its shares.
“For this purpose Rosneft plans to use 9.53 percent of its treasury stock and over 3 percent of its shares acquired in a buyback deal in May,” a Kommersant source said, adding BP would become Rosneft’s largest shareholder after the Russian government with a 12.53 percent share package worth $8.6 billion at market value.
BP announced its decision to quit TNK-BP, which accounts for a quarter of the British oil giant's global production and almost a fifth of its reserves, in June 2012 after a long-standing row with the Russian billionaire shareholders that cost BP some of its control over the company.
In January 2011 a proposed joint venture between BP and Rosneft to develop Russian Arctic energy interests, and a proposed share swap between BP and Rosneft, was ultimately abandoned after AAR took BP through arbitration, claiming the TNK-BP shareholder agreement gave TNK-BP the first right of refusal on any proposed BP projects in Russia – a position which was ultimately upheld.
The BP announcement came after TNK-BP CEO Mikhail Fridman announced his resignation in late May over what he said was a collapse in management , with AAR CEO Stan Polovets saying time had come for a review of the 50-50 ownership structure of TNK-BP.
Under the TNK-BP shareholder agreement, BP has 90 days for “good faith negotiations with AAR,” during which it may not sell its stake to other bidders. This term expires on October 17. Kommersant sources said the Rosneft-BP deal may be announced before that date.
“Everything will depend on AAR’s position. If they [AAR owners] come to realize they won’t be able to repurchase BP’s stake and won’t lay clams on it, Rosneft and BP will announce a deal in the near future,” the source said.
Rosneft is offering better terms to BP than AAR. The consortium of Russian billionaire shareholders wants to gain operational control of the joint venture by buying 25 percent of the company, or half of BP’s stake for $10 billion.
“But the terms outlined by Rosneft, which offers a higher valuation plus its shares is, of course, more advantageous for BP. AAR will hardly raise its offer,” a Kommersant source said.