BP-Rosneft deal at risk as swap deadline nears

MOSCOW Wed Apr 13, 2011 10:17am EDT

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MOSCOW (Reuters) - BP's tie-up with Rosneft was at risk of collapse on Wednesday as the state-controlled Russian oil major said it would not extend a Thursday deadline on a $16 billion share swap.

The possible failure of the deal would hurt CEO Bob Dudley, who on Thursday faces shareholders angered by the Gulf of Mexico disaster as BP holds its AGM, and also Russian Deputy Premier Igor Sechin, who masterminded the deal for Rosneft.

The pact to exchange equity stakes and launch an Arctic offshore exploration venture fell foul of a legal challenge by the billionaire co-owners of BP's Russian venture TNK-BP. Arbitration has failed to yield a compromise.

"The deadline has not been extended," Rosneft spokesman Rustam Kazharov said.

Unless an 11th-hour compromise can be found to extend the deadline, Rosneft will this week launch a search for a new partner for the Arctic exploration venture, sources familiar with the matter said.

There is no shortage of oil majors ready to jump into BP's shoes, with players such as Shell or firms that have struck deals with Rosneft in the less-prospective Black Sea, like Exxon , likely contenders.

It was not clear, however, whether the public line taken by Rosneft represented a firm position or a hardball negotiating tactic. Another senior source close to the company said BP, however, remained the favored partner.

Rosneft, he said, was "optimistic about our relationship with BP and about the deal." But he added: "We have options."

CONSIDERING ALL OPTIONS

BP reiterated that it was "considering all options," but despite media speculation that it might buy out its TNK-BP partners, or even sell its stake to them, there was no sign of a prompt resolution to their dispute.

Sources close to the shareholders of TNK-BP said its board -- which has the right to review the BP-Rosneft deal -- would not meet before the share swap agreement expires.

Tycoons Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik have won every round of the legal battle against BP, arguing that the Rosneft deal violates a right of first refusal on BP deals in Russia in TNK-BP's shareholder agreement.

An arbitration tribunal last Friday upheld a temporary injunction against the share swap but gave BP time to try and extend the deadline. It kept an injunction against the offshore venture in force.

LOSING PATIENCE

Rosneft has long sided with BP in the dispute, saying on March 11 that their deal was "strategic in character and directed at the multilateral development of an alliance with BP."

But Sechin, who stood down on Monday as Rosneft chairman on the instruction of President Dmitry Medvedev as part of a broader move to purge ministers from the boards of state firms, has shown increasing impatience.

Responding to last Friday's arbitration ruling, he threatened unspecified legal action against anyone who blocked the deal, warning that after the share swap deadline expires "we will be living under different conditions."

Officials, industry sources and analysts say that Sechin's departure as chairman would not have a material impact on Rosneft's strategy.

But, reputational damage aside, Rosneft still has choices, whereas BP and the billionaires can ill afford to abandon their unhappy but lucrative marriage at TNK-BP, Russia's No.3 oil firm, whose listed unit pays a juicy 12 percent dividend yield.

Sechin and his boss, Prime Minister Vladimir Putin, have expressed anger that they were not properly briefed by BP on the TNK-BP shareholder agreement, but have also tolerated the robust legal action taken by the Russian shareholders.

The official line in Moscow has been that the government would not intervene while the arbitration process continues, but industry and political sources also note that the oligarchs have won cover from Medvedev to press their legal case.

That suggests that an incipient contest between Medvedev and Putin, who have yet to decide which of them will run for the presidency in March 2012, has created unexpected complications for Rosneft's growth and development strategy.

(Additional reporting by Tom Bergin in London and Katya Golubkova and Vladimir Soldatkin in Moscow. Editing by Jane Merriman)

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