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BP, Rosneft Complete TNK-BP Deal

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British energy giant BP plc (BP) and Russia’s state-operated oil company, OAO Rosneft, have finally closed their deal related to TNK-BP, ahead of schedule.

BP divested its 50% stake in TNK-BP in line with the terms announced in Oct 2012. BP was entitled to receive $17.12 billion in cash and shares, giving it a 12.84% equity stake in Rosneft. Second, the UK giant had planned to buy an additional 5.66% share in Rosneft from the Russian state with approval already granted. For this, BP was supposed to siphon $4.87 billion from the cash proceeds.

Subsequently, BP received a final amount of $16.65 billion from Rosneft after adjustments. This excluded a dividend of $0.71 billion received by BP in Dec 2012 from TNK-BP. In accordance with the deal, BP used $4.87 billion of the proceeds to acquire a 5.66% share in Rosneft from ROSNEFTEGAZ. Therefore, BP received a net amount of $12.48 billion after adjusting for a dividend of $0.71 billion received for TNK-BP as well as an 18.5% share in Rosneft.

As a result of these transactions, BP has raised its ownership in Rosneft to 19.75% taking into consideration its existing minority stake of 1.25% in the Russian company.

This deal makes Rosneft the world's biggest listed oil company in terms of market capitalization. BP, for its part, stands to gain essential access to hydrocarbon reserves in the remote Arctic belt of Russia. BP’s sale of TNK-BP’s stake has helped it in simplifying its operations in Russia via a major strategic shift. We note that BP is also busy in reshaping its portfolio through the divestiture of smaller non-core properties to help pay spill-related costs while holding onto potential big resources.

Since 1998, BP and Rosneft have worked together in the exploration of the offshore Sakhalin Island. The pair also shares 50:50 ownership in the joint venture entity – Ruhr Oel GMBH − that owns stakes in 530,000 barrels per day of refining capacity in Germany.

BP carries a Zacks Rank #3 (short-term Hold rating). However, there are other stocks in the energy sector, namely, Enerplus Corporation (ERF),  Range Resources Corporation (RRC) and EPL Oil & Gas, Inc. (EPL) , which carry a Zacks Rank #1 (Strong Buy) and are expected to perform impressively over the next few months.

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