BP, Rosneft offered to buy out BP Russian partners

LONDON Thu Apr 14, 2011 12:45pm EDT

BP shareholders queue to enter the BP annual general meeting in east London, April 14, 2011. REUTERS/Suzanne Plunkett

BP shareholders queue to enter the BP annual general meeting in east London, April 14, 2011.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - BP and Russia's Rosneft appear to have few options left to salvage a $16 billion share swap deal after trying unsuccessfully to buy out BP's partners in its Russian venture TNK-BP.

"We have offered them participation in the Arctic. We have offered cash, we have offered participation to TNK-BP in international ventures and we have even jointly offered, with Rosneft, a fair offer for their company," BP Chief Executive Bob Dudley told shareholders at the company's annual general meeting on Thursday.

"We are not going to offer large amounts or significant shareholdings in BP," he added.

The share swap and Arctic exploration deal with Rosneft, which was supposed to mark the beginning of a recovery at BP after its Gulf of Mexico oil spill disaster, have been blocked in the courts by BP's oligarch partners in TNK-BP.

The AGM was marred by campaigners protesting against the oil giant's role in last year's Gulf spill.

Earlier on Thursday, BP extended by a month the deadline to complete a $16 billion share swap with Rosneft hours before its expiry, giving the oil major more time to salvage a deal beset by problems from the start.

Sources close to TNK-BP's Russian shareholders said that BP had offered $27 billion for their 50 percent stake, which they declined as insufficient, although that figure could not be independently confirmed and was regarded as high by another source close to Rosneft.

BP's Russian partners, a group of oligarchs represented by the Alfa-Access-Renova (AAR) consortium have no plans to sell up, its chief executive told Reuters.

"AAR is a long-term strategic investor in TNK-BP and has no plans to exit," Stan Polovets, chief executive of AAR said.

Industry sources have said AAR, representing tycoons Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, is trying to get a piece of the action in the Arctic or to partner with BP abroad.

DEADLOCK

Thursday's decision to postpone the deadline suggests Rosneft believes it needs BP as much as BP needs it.

Exxon Mobil, Royal Dutch Shell and others tried to gain access to Rosneft's Arctic fields before BP agreed to fund a new $1.2-$2 billion exploration venture, and industry sources said Rosneft could still find plenty of takers for this part of the deal.

However, Rosneft's prime backer in government, Deputy Prime Minister Igor Sechin, wanted a deal that would help Rosneft become a global player, and the share swap was seen as key to ensuring BP helped Rosneft to achieve this ambition.

Executives at other oil giants have indicated their companies would not be willing to engage in a share swap of the kind BP agreed.

"The deal is too important for Russia's strategic development of the Arctic to fail," said Chris Weafer, chief strategist at Uralsib in Moscow.

"Although other companies have the technical competence, BP is the more ideal partner because it allows Russia to say that a company with a checkered experience in Russia will still invest."

The share swap deal, which now has until May 16 to be completed, would see Kremlin-controlled Rosneft become BP's largest shareholder.

"The fact that such a long extension was granted would suggest that there must have been high-level political intervention at the last minute," added Weafer.

A Rosneft spokesman said on Thursday that it was not looking for another partner to replace BP in the Arctic pact.

BP shares, which have lagged rivals by around 10 percent since the deal was signed in January, traded down 0.8 percent on Thursday against a 0.6 percent drop in the STOXX Europe 600 Oil and Gas index.

BP said it would continue to try and resolve the disagreement with its TNK-BP partners, who are angry BP did not negotiate the transaction through TNK-BP.

(Additional reporting by Sarah Young, Vladimir Soldatkin, Doug Busvine, Katya Golubkova and Oksana Kobzeva; Editing by Sophie Walker, Will Waterman and Erica Billingham)

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