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BP, AAR Reach an Accord over TNK-BP

Zacks Equity Research

British energy giant BP plc ( BP) and its Russian joint venture partner in Anglo-Russian oil company TNK-BP – Alfa-Access-Renova or AAR group - have reached an accord to resolve all the outstanding disputes between them. The settlement includes the recent arbitrations between the respective parties with respect to damages claimed from BP's failed Russian exploration deal with Rosneft in 2011.


The deal involves an instant cancellation of a provision, which restricted both the partners from pursuing new opportunities in Russia. With the termination of this provision, both BP and AAR are now free to pursue new prospects in Russia and Ukraine. Both the partners have also agreed to work together to facilitate the sale of their respective holdings in TNK to Rosneft.


TNK-BP, formed in 2003, through the integration of BP’s and AAR’s Russian oil and gas assets, has upstream and downstream operations in Russia and Ukraine as well as international interests in Brazil, Venezuela and Vietnam.


In June 2012, BP announced its plan to dispense with its stake in the joint venture mainly due to the conflict of interest between the two partners over the company’s management and control. The situation worsened when AAR filed legal suits against BP and prevented the strategic alliance between Rosneft and BP relating to the joint development of Russia's Arctic shelf in May last year. Later, the Russian oil giant inked a far better deal with ExxonMobil Corporation ( XOM).


In October 2012, BP decided to divest its 50% holding in TNK-BP to Rosneft and is likely to purchase 5.66% interest in Rosneft from the Russian government. The transaction, valued at about $28 billion, is likely to close in the first half of 2013. BP’s deal is subject to the consent of the Russian government to sell the additional 5.66% stake in Rosneft as well as final board consent by Rosneft and BP.


Rosneft has also agreed to acquire the balance 50% interest in TNK-BP from AAR. This deal is completely independent of BP’s transaction.


BP carries a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation on the company.

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