BP’s marriage, and its suffering, may be over in Russia

October 17, 2012
Obsession
Energy Shocks
October 17, 2012

BP shares were up sharply on Oct. 17 in London on a report that its war with four Russian oligarchs may be at a close. The report, at Sky News, is that the oligarchs have an agreement in principle to sell their half-share in TNK-BP, Russia’s third-largest oil company, to state-owned Rosneft. The reported price is $28 billion, slightly higher than the market had suggested a half-share was worth.

Emails to AAR, as the oligarchs call themselves, were not immediately answered. But if true, it would be a surprising close to a volatile, though lucrative, decade-and-a-half-long relationship between BP and AAR. In June, BP itself sought to end the relationship by announcing it was selling its 50% share of TNK-BP. The known rivals for the share were AAR and Rosneft. A contractual provision gave AAR until Oct. 17 to negotiate exclusively for the share, after which it was open bidding. Meanwhile, AAR said that not only was it prepared to buy out BP, but it also might sell if that was lucrative. On Oct. 14, one of the oligarchs, Viktor Vekselberg, told me in Moscow that AAR would sell “if the price is right.”

In an email, BP spokesman Toby Odone said he does not know whether the report that AAR is going to sell is true, but “our sale process remains on track; we have not waived our rights under the shareholder agreement (we have 45 days to respond their sale plan which they notified us on Oct 9th); and we are confident in our process.”

One potential outcome is that BP now hangs on to its share in TNK-BP in a new partnership with Rosneft. That might be ideal for BP, which after years of suffering with the oligarchs would be able to keep one of its most lucrative assets on the planet, which has paid out some $19 billion in dividends over the years and currently accounts for a quarter of its worldwide production, while also being in line for future deals with Rosneft, including on the hydrocarbon-rich Arctic Sea.

The BP-AAR marriage has been among the stormiest in Russia, which is saying a lot in a place with one of the rockiest business climates in the world. Every year seemed to bring a new brawl. The rows went international in recent years as AAR hired Western public relations advisers to improve the oligarchs’ image among BP shareholders.

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