Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
With the negative publicity of the infamous Deepwater Horizon oil spill in the Gulf of Mexico now fading into the past, BP (LSE:BP.) has been able to focus on its 2nd worst nightmare, a partnership gone terrible wrong with the Russian oil giant, TNK-BP. Several months of negotiations have produced an agreement with Rosneft, another Russian company which will acquire BP’s 50% share in TNK-BP. BP has had an ongoing sour relationship with the TNK-BP oligarch investors that has stymied operations and what originally looked as though it would be a productive relationship.
Rosneft is recognized as the leader in the Russian oil and gas industry. The company is a member of the Russian Government’s List of Strategic Enterprises and Organizations. Rosneft has 22.8 billion barrels of oil equivalent in reserve, seven refineries throughout the country and production licences in all of the major oil producing regions of the Russian Federation. Production for 2011 was 2.45 million boepd. This is not the first affiliation between Shell and Rosneft, the companies having signed an agreement in 2007 to jointly develop the Sakhalin Shelf.
BP CEO Bob Dudley said “Rosneft is a company working to become a global leader in the sector. It is developing its substantial asset base with new technologies and improving its management processes and corporate governance. As a major investor, BP looks forward to being able to contribute to Rosneft’s success and add value through our participation on the Board.”
One of the attractive features of the new relationship that will develop with BP and Resneft is the practice of the Russian company to operate its accounting by US GAAP, which it has been doing since 2007. This is especially true as many of BP’s problems with TNK revolved around accounting methodology and corporate governance.
Chairman Carl-Henric Svanberg said, “We are now laying a new foundation for our work in Russia. It provides us with a sustainable stake in Russia’s energy future and is consistent with our Group strategy.”
Rosneft will pay for BP’s stake in TNK-BP with a settlement composed of a combination of $17.1 billion in cash and nearly 1.4 billion Rosneft shares. The share price in Rosneft closed at $7.13 on Friday, October 19th. BP will be acquiring its shares directly from the Russian government for an offering of $8.00 per share.
BP shares spiked temporarily today from 450.00 to 490.00, but receded back to 454.00 by noon.
The agreement will take several months to complete as details are worked out and government approvals are acquired. When all is said and done, BP will hold a 19.75% interest in Rosneft and will have received a net total of $12.3 billion in cash.
Getting the TNk monkey off its back ought to allow BP to focus less on bickering in the boardroom and more on its primary business of exploration, development, production, and delivery of petroleum products. The end of unrest in the TNK-BP relationship should also give BP shareholders a greater sense of security, especially those who have been willing to face and weather the storms of the past several years. And, as a reward for their loyalty, BP should be able to generate handsome earnings per share and royal dividends.
The clouds are beginning to clear and the sun is shining on BP once again.
