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BP confirms talks with Rosneft on TNK-BP

Nataliya Vasilyeva, Associated Press

LONDON (AP) -- British oil company BP confirmed Monday it is in advanced talks about selling its stake in TNK-BP to Rosneft, Russia's state-controlled oil company, in a near $30 billion deal that could pave the way to further big changes in one of the world's biggest energy markets.

It was the first confirmation from BP that it was negotiating to sell its 50 percent stake in the TNK-BP joint venture to Rosneft. Though its involvement in the joint venture been hugely lucrative, BP has had a turbulent experience, especially in the last few years.

Though a deal has yet to be concluded, the expectation in the markets is that BP will end up taking a stake in Rosneft, which is 75 percent owned by the Russian government. BP has been involved in the Russian energy market for 15 years.

A person familiar with the talks told The Associated Press on Sunday that Rosneft would buy BP's stake in TNK-BP for between $10 billion and $15 billion cash, plus a 15-20 percent share in Rosneft. The person spoke on condition of anonymity. At current prices, a 20 percent stake in Rosneft is worth around $15 billion.

BP shares were 0.2 percent lower at 4.49 pounds in morning trading in London, while Rosneft shares were trading 1.6 percent higher at 217.47 rubles on the MICEX stock exchange.

"The prospect of a cash payout has investors rubbing their hands in glee, but the loss of the income from TNK-BP will be a point of contention for many," said Chris Beauchamp, market analyst at IG.

Russia is an increasingly important part of BP's business, accounting for a quarter of its oil production. Despite its problems in Russia, BP's Chief Executive Bob Dudley has looked to the country's vast oil resources as a key ingredient to the company's recovery from the disastrous oil spill in the Gulf of Mexico.

Rosneft lies at the heart of BP's problem in the TNK-BP joint venture. Dudley's hope in early 2011 of forging a partnership with Rosneft to explore for oil beneath the Arctic Ocean foundered on opposition from its partners in TNK-BP. Four Russian billionaires, under the guise of a company called Alfa-Access-Renova, control the remaining 50 percent stake in the venture.

BP and its partners have since spent much of the time in dispute.

A police raid on the Moscow offices of BP and TNK-BP in 2008 dramatized BP's difficulties in Russia, and Dudley was forced to leave the country after being denied a new visa. Dudley complained that the Russian shareholders were behind a campaign of harassment.

The Russian shareholders have also protested against hefty spending on expatriate compensation packages for BP's managers brought in to TNK-BP as well as BP's focus on production in Russia. They wished the joint venture had more focus on an international expansion rather than increasing efficiency and production at brownfields in Siberia.

Though an exit of the TNK-BP will put an end to the squabbling, a tie-up with Rosneft presents other challenges for the British company, not least whether it will be drawn into supporting the Russian government's foreign policy.

Rosneft as well as other state-owned companies have in the past years committed to an array of deals with the Kremlin allies such as Venezuela which have very uncertain economic prospects. Analysts have pointed that several foreign pipeline and oil projects by Russian companies abroad are so economically unviable that can only be explained by geopolitical objectives.

However, Alexei Kokin at the UralSib investment bank, said BP's involvement in Rosneft may make the company more independent.

He said BP's involvement "would reduce downside risks related to government ownership of Rosneft, especially in relation to investment decisions and the decline in crude production at mature fields."

Rosneft, already a key player in the Russian energy complex, looks like it will get even bigger soon.

Russian Deputy Prime Minister Arkady Dvorkovich said Rosneft would get several licenses to develop new oil fields in the coming days.

Dvorkovich told the Itar-TASS news agency on Monday that remaining formalities would be settled in "the coming days, weeks at most," he said.

Analysts at Moscow-based investment bank Renaissance Capital said recently that the BP-Rosneft deal "could have a domino effect on the Russian oil sector, as other players may try to respond to Rosneft's move by acquiring other companies," and bring a larger presence of international companies.

Renaissance said it expects Rosneft to eventually acquire full control of TNK-BP by buying AAR.


Vasilyeva reported from Moscow