BP sells TNK-BP stake to Rosneft

22 October 2012

BP says it has agreed to sell its 50% stake in TNK-BP to Russia's Rosneft in return for cash and shares. The UK-based group will receive $17.1bn (£10.7bn) cash and an initial 12.84% stake in Rosneft, and will use some of the cash in future to buy further Rosneft shares, taking its stake to 19.75%. This will enable BP to continue to share in Russia's vast energy resources.

Rosneft is paying $55 billion for TNK-BP, and BP will retain a 20% stake

Rosneft is also buying the other half of TNK-BP from the AAR consortium of Russian oligarchs for $28bn, making the total outlay $55 billion for the state-owned group.

Rosneft said it would have two BP representatives on its board and that it would "benefit from BP's significant experience and successful track-record of applying best international practices in Russia".

The acquisition of the stake in TNK-BP, one of Russia's biggest oil firms, will give Rosneft about half of Russia's energy sector and make it the world's largest publicly-traded oil group, overtaking Exxon Mobil.

The deal gives Rosneft extra output and cash flow to finance exploration of Russia's vast reserves to replace ageing and depleting fields. It keeps BP's expertise in Russia and provides the "quality" private shareholder President Vladimir Putin wants in order to show his critics he is pursuing privatisation.

Putin said Rosneft had made a good deal at a good price: "This is a good, large deal that is necessary, not only for the Russian energy sector but also the entire economy."

Although BP's involvement in the Russian joint venture has been lucrative, paying billions of dollars in dividends to the UK company, relations with its oligarch partners have come close to breakdown. In 2011, the AAR consortium attempted to block a drilling joint venture in the Arctic between BP and Rosneft through the courts. The plan was eventually dropped.

As well as internal wrangles, BP employees at TNK-BP have fallen foul of Russian authorities.

While serving as head of TNK-BP, Bob Dudley - now the head of BP as a whole - had his office bugged and raided by the police and met with onerous back-tax demands, legal action and visa problems. He eventually fled the country in 2008.

A tie-up with Rosneft would keep BP in Russia, allowing it to continue to explore and exploit the country's vast energy resources, including in the Arctic region. Rosneft would be able to tap into BP's expertise in exploring in difficult and potentially hazardous conditions.