Rosneft pays out in historic TNK-BP deal completion

By Vladimir Soldatkin and Andrew Callus ,Reuters

MOSCOW/LONDON — Russian state oil company Rosneft closed its deal to buy TNK-BP from UK-based BP and four tycoons on Thursday, releasing US$40 billion cash to the sellers and becoming a bigger oil producer than Exxon Mobil. The US$55 billion deal, which also gives BP a near 20-percent stake in Rosneft, was announced last year after months of on-off negotiations. It is the biggest in Russia’s corporate history. It tightens the government’s grip on the energy sector and is a victory for Rosneft chief Igor Sechin, a close confidant of Russian President Vladimir Putin, creating a business with annual production of about 4.6 million barrels of oil equivalent, more than Exxon Mobil, the world’s No. 1 investor-owned company. The deal gives Rosneft an expert international shareholder and extra oil output revenue it can put to work to explore Russia’s vast reserves and to replace ageing and depleting fields. It hopes to extract US$10 billion a year of costs savings. BP, selling one half of the business, gets some hard cash in the bank that reduces its dependence on an uncertain future in the country. It has promised some of the US$12.3 billion to shareholders, and can set the rest against its multibillion-dollar Gulf of Mexico oil spill liabilities.

Cash also goes to the private businessmen who owned the other half of TNK-BP to fund their international ambitions. A BP spokesman confirmed that the company’s cash was in the bank, and outside Russia. BP has made huge profits in its 20-year history there, but where increasing state involvement has hampered its business plans over the past decade.

TNK-BP was created in 2003 by a merger of BP’s Russian operations with those of the Alfa-Access-Renova (AAR) consortium of four Soviet-born billionaires, some of whom will stay in the oil industry by setting up international investment business.

Thursday’s deal has brought the state share in Russia’s oil sector, the world’s largest by output, to more than 50 percent. It has drawn criticism from some analysts and managers of non-state enterprises, who said it would hinder competition and production growth. The acquisition closed three months ahead of its June 30 deadline, as predicted in an exclusive Reuters story of Feb. 22.

“This is a historic day for BP in Russia,” BP Chief Executive Robert Dudley said in a statement. “BP has invested in Russia for more than 20 years and for a decade we have been Russia’s largest foreign investor through our involvement with TNK-BP.”