LONDON/MOSCOW BP is in talks about buying out its Russian partners in TNK-BP, in conjunction with state-controlled Rosneft, and other options to ease passage of a stalled share swap and Arctic exploration deal, sources close to the matter said on Monday.
BP has until 7 p.m. EDT Monday to complete a $16 billion share swap with Rosneft that was a key plank in a deal intended to give the British group an interest in offshore Arctic exploration leases that could contain over 40 billion barrels of oil.
With BP's production falling as it sold fields to pay for the Gulf of Mexico oil spill, the deal was intended as signal it could still offer long-term growth.
However, AAR, the group which represents the half share of TNK-BP owned by four oligarchs, secured a legal injunction blocking the share swap, unless BP convinced Rosneft to allow TNK-BP to be BP's vehicle in the exploration part of the deal.
Rosneft has said it does not want TNK-BP, which has no offshore experience, in the deal, and one way to get around AAR's objections would be to buy them out.
BP chief executive Bob Dudley said that in conjunction with Rosneft he had offered $27-$28 billion for AAR's stake in TNK-BP, but was rejected. AAR said it had not received a "serious" proposal.
Sources close to the process said while a purchase of the stake remained under discussion, BP and Rosneft viewed the oligarchs demands of over $30 billion as excessive and did not want to be seen to overpay.
Already investors and analysts are questioning the wisdom of the deal, and Dudley's judgment.
"On the surface it would appear that BP cannot win as there is a suspicion that any deal with the AAR partners would be done at a disadvantage to BP," said analysts at Evolution Securities in a research note on Monday.
"If BP walks away it is not necessarily a disaster and would be better than a rash deal with AAR that could prove more damaging in the long term," Evolution said.
The sources said Rosneft could agree to another extension of the deadline, abandon it, or that Rosneft might be convinced to allow TNK-BP into the exploration deal.
BP has said it could second offshore experts to the venture, which could overcome Rosneft's concerns about the company's offshore experience.
(Editing by Dan Lalor)