The oligarchs are all :) as Rosneft becomes the world’s largest oil producer and rescues BP

Oil reservoirs owned by Rosneft in Russia’s Arctic Far North
Oil reservoirs owned by Rosneft in Russia’s Arctic Far North
Image: AP Photo / Misha Japari
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Russia’s Rosneft is poised to become the largest single publicly traded oil company in the world after President Vladimir Putin blessed its purchase of 100% of TNK-BP for about $55 billion. The agreement is triumphant for BP after a tough two years in which many analysts doubted its ability to go on. And it allows a graceful exit for four Russian oligarchs who less than two years ago humiliated the country’s most powerful oil official.

In an announcement, BP said that when the complex deal is wrapped up for its 50% share of TNK-BP, it will own 19.75% of Rosneft, and have $12.3 billion in cash on hand. That will be exceedingly valuable because the British company is in advanced talks for what fine it will pay the US as a penalty for the 2010 Macondo oil spill in the Gulf of Mexico.

Separately, Rosneft said it will proceed with the purchase of the other 50% of TNK-BP, owned by AAR, as the four oligarchs–Len Blavatnik, Mikhail Fridman, German Khan and Viktor Vekselberg–call their grouping. The price will be about $28 billion cash. A person familiar with the oligarchs’ thinking said their part of the deal is “subject to a definitive agreement … but should be [final].” The email ended: “:)”

That coda to the email represents the tension that surrounded the AAR half of the deal as it was not clear that Rosneft chairman Igor Sechin would go through with it because of bad blood between the two sides. In January 2011, AAR sued and scuttled a large deal in which Rosneft and BP agreed to form a corporate partnership and drill on the Arctic together.

It was not clear whether Rosneft will pay AAR the cash all at once or in stages. Paying all at once in both deals could be difficult for the state-controlled company, which recently got London-based banks to commit to providing about $15 billion for the deal.

Since 2010, BP has at times seemed on the brink of coming apart. The trouble started with 2010’s devastating oil spill in the Gulf of Mexico, which brought into question its ability to operate safely. Then came yet another brawl with its Russian partners in TNK-BP, which said it could no longer work with BP after an on-and-off decade-and-a-half-long relationship.