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BP could lose 50% stake in Russian oil firm - reports

19th July 2012

BP enters period of negotiation with AAR for 50 per cent stake in Russia’s third largest oil company, TNK-BP.

BP could lose 50% stake in Russian oil firm - reports
TNK-BP is Russia’s third largest oil company, with 5 refineries, four in Russia and one in Ukraine. Its 2011 production registered 1.99 million barrels of oil equivalent per day.

BP has launched talks with a Russian oil major which could result in the UK energy giant relinquishing half of its stake in the firm, both companies confirmed on Wednesday.

BP and its Russian partners, the Alfa Access Renova Group (AAR), entered on Thursday a “90-day period of ‘good faith’ negotiations” for the potential sale of BP’s 50 per cent stake in TNK-BP, BP said in a statement. The partnership, while highly profitable, has been turbulent due to disagreements among senior figureheads.

TNK-BP is Russia’s third largest oil company, with five refineries, four in Russia and one in Ukraine. Its 2011 production registered 1.99 million barrels of oil equivalent per day.

“This has been a serious prospect for BP for a while,” a spokesperson for BP told OGT. While prevalence for AAR will be given by BP in the next 90 days, BP “will enter into negotiations with other interested parties,” the firm said, which could include members of Western major oil. “We have had expressions of interest concerning our TNK-BP shareholding and will be looking at them”.

BP’s announcement creates “good news” by “returning significant cash to the shareholders,” according to Alfra Group and AAR chairman Mikhail Fridman.

However, BP could see itself turn away from a significant source of revenue. Since its inception in 2003, TNK-BP has generated USD 19bn in dividends for the British major. It accounts for approximately 30 per cent of BP’s production.

“Our Russian venture has had its fair amount of difficulties,” BP told OGT in reference to disagreements between BP management and its AAR counterpart about how TNK-BP should be run.

AAR had previously offered to buy half of BP’s stake for USD 7bn, but the British firm rejected the offer repeatedly, saying it would only be prepared to sell the entirety of its stake in the Russian oil company.

BP’s shareholdings in TNK-BP have been estimated at USD 25-30bn, analysts said; an amount considered “unrealistic” by AAR. BP told OGT it had “never stated a price,” although it rejected AAR’s USD 7bn offer for half of its stake.

Exxon Mobil’s interest in the sale “would be quite possible,” Fridman said. “The Russian government probably wouldn’t oppose that,” he added, but highlighted that potential Western buyers would have to discuss a potential partnership with AAR. “As of today, we've had no contacts with anyone on this,” he said on 29 June.

“They [AAR] have no say on who we sell to. We decide exclusively beyond the 90-day period,” BP told OGT.

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