BP, Rosneft set for $25 billion-plus TNK-BP deal

Sat Oct 20, 2012 7:04pm EDT
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By Andrew Callus and Alexei Anishchuk

LONDON/MOSCOW (Reuters) - Rosneft (ROSN.MM: Quote) and BP (BP.L: Quote) are preparing to announce a deal worth over $25 billion that could give the British oil company a stake of between 16 and 20 percent in the state-controlled Russian energy firm, sources familiar with the situation said.

The agreement, which has yet to be finalized but which could be made public on Monday or Tuesday, folds BP's half of TNK-BP TNBP.MM, Russia's third-largest oil company, into Rosneft, in exchange for cash and Rosneft stock.

It allows BP to end a stormy relationship with its partners in the venture, AAR, and to pursue closer ties to a Russian government that exerts a much tighter hold on the oil industry than in it did in the 1990s when BP first invested there.

TNK-BP is highly profitable and provides a quarter of BP's total production, but its fields are mature, and the Soviet-born business tycoons who own the other half through AAR were in the way of BP's search for growth in oil-rich Russia through closer ties with Rosneft and its powerful boss.

Should the deal be finalized and survive a months-long Russian government approval process, BP's overall exposure to Russian barrels would be lower, but the holding could secure it seats on the Rosneft board and closer ties than any of its rivals to Igor Sechin, the chief executive of Rosneft, who has a significant say in energy policy.

Rosneft is already the top producing company in Russia. If, as looks likely, it buys out AAR's half of TNK-BP as well, it will control more than half the country's output and be pumping more oil and gas than Exxon Mobil (XOM.N: Quote), the world's top international oil company.

The deal gives Rosneft extra output and cash flow to finance exploration of Russia's vast reserves to replace ageing and depleting fields. It keeps BP's expertise in Russia and provides the "quality" private shareholder President Vladimir Putin has been looking for to show his critics he is pursuing a privatization program.