BP takes a major stake in Russia oil producer

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BP is to take a near-20 per cent stake in what will become the world’s largest publicly listed oil producer as part of a £16.7bn deal.

The price is made up of £10.7bn in cash and £6bn worth of Rosneft shares.

The deal, which is subject to state and regulatory approvals, will see BP grab a 19.75 per cent stake in Rosneft, which will become the world’s biggest publicly traded oil company with daily crude output of more than three million barrels.

Following the agreement, BP chairman Carl-Henric Svanberg hailed the move as “an important day for BP”.

BP will reinvest £2.9bn of the cash received in the deal to buy part of its eventual stake in Rosneft, equal to around 5.66 per cent.

Signing of the definitive agreements is conditional on the Russian government agreeing to the sale of this part of the stake.

BP expects to have two seats on Rosneft’s nine-person main board as part of the deal.

BP and Rosneft now have an exclusivity period of 90 days to negotiate fully-termed sale and purchase agreements.

Completion is also subject to certain closing conditions, including governmental, regulatory and anti-trust approvals, which is currently expected to happen in the first half of 2013.

Mr Svanberg said: “Russia is vital to world energy security and will be increasingly significant in years to come.

“Russia has also been an important country for us over the past 20 years.

“Our involvement has moved with the times. TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia.”

Rosneft and the four Russian billionaires who own the other half of TNK-BP – known as Alfa-Access-Renova (AAR) – have also signed a memorandum of understanding that would see Rosneft acquire their stake at a later date.

BP said it supports Rosneft in its plans to acquire additional equity stakes from other shareholders in TNK-BP.

TNK-BP is Russia’s third largest oil producer, which employs around 50,000 staff and has assets across Russia and the Ukraine.

It had an average daily production in 2011 of 1.987 million barrels of oil equivalent a day.

BP has had a fraught relationship with AAR, although the TNK-BP venture is thought to have earned the British firm £11.8bn in dividends.

A dispute between BP and AAR effectively sank a proposed tie-up between the British supermajor and Rosneft last year, which included Arctic exploration plans.

In 2011, Rosneft produced 2.45 million barrels a day of oil, up 52 per cent since 2006, and its net income totalled £6.7bn.

The deal keeps BP’s expertise in Russia and provides the “quality” private shareholder President Vladimir Putin wants in order to show his critics he is pursuing a real privatisation agenda.

“This is a very good signal for the Russian market. It is a good, large deal. I would like to thank you for this work,” President Putin told Rosneft’s chief executive Igor Sechin.

Santander analyst Jason Kenney said: “It’s certainly a historic deal and a historic day for BP and Rosneft and TNK-BP,

“I do think Rosneft is the winner in this.

“They get a lot of credibility by having a western investor on the board and involved in its Russian resource and operations, and it’s a good partner to have.

“For BP, they get an early monetisation of its current Russian asset base, they shake off the political troubles that it had by having that stake, but a lot of the upside for BP is probably long-dated and it’s difficult to see how it’s going to be valued into BP’s share price on a near-term basis,” he added.

BP is a major employer in East Yorkshire through its acetyls plant at Saltend, near Hull.