* Combined group's output would be more than Exxon's
* Oligarchs to cash out of alliance with BP
* Clears way for BP-Rosneft to revive upstream deal
* Rosneft CEO Sechin in London for talks with BP
* Kremlin seen blessing stake sale
* AAR wil not bid for BP's stake-CEO says
By Douglas Busvine and Melissa Akin
MOSCOW, Oct 17 Russian state oil company Rosneft
was closing in on control of privately-held TNK-BP on
Wednesday, sending its powerful boss to London for talks with 50
percent shareholder BP after the tycoons who own the
other half agreed to sell.
Industry and financial sources in London, Moscow and
elsewhere painted a picture of a potential three-way deal that
could emerge over the coming weeks.
They said both the British oil company and the four
Soviet-born tycoons could emerge with minority stakes in an
enlarged Rosneft as well as billions of
dollars in cash -- all in exchange for a highly profitable
company which has been valued at over $50 billion.
The combined group would dominate Russia's increasingly
state-controlled oil industry, and would be producing well over
4 million barrels of oil and gas a day - more than U.S. No.1
According to two sources familiar with the matter, Rosneft
agreed on Tuesday to pay the tycoons' AAR consortium $28
billion. However, financial sources said it was unlikely all of
this would be in cash, especially if Rosneft intends to buy out
BP as well.
Some $15 billion could be met through a loan agreement
Rosneft has been negotiating with international banks for weeks
and it can get another $3 billion from Russian banks, said the
However, "There is a point where raising debt would have a
negative impact on Rosneft's credit rating," said one banker,
while another said $20 billion was the most Rosneft can borrow
without putting a strain on its ability to refinance later.
Rosneft, AAR and BP all declined to comment, while a senior
minister said Rosneft had not yet requested the necessary
government approval for a deal. BP's shares closed up 3 percent
on the news at 452 pence as investors digested the prospect its
years of Russian difficulties could now be behind it.
SECHIN FLIES IN
BP's decision in June to put its own stake up for sale put
pressure on the oligarchs to sell their half of the business
because, analysts said, the first to sell to Kremlin-backed
Rosneft was likely get the higher price.
An exclusivity period during which only AAR could have
bought BP's stake expires at the end of Wednesday, and Igor
Sechin, the company's CEO and Russian most powerful energy
official, was visiting London on Wednesday for talks with
Europe's second largest oil company, according to a source
familiar with his schedule.
AAR chief executive Stan Polovets said his group would not
now be making an offer, leaving the way clear for Rosneft to
strike a deal.
Rosneft has for some time been widely expected eventually to
secure overall control of TNK-BP. A minority stake in an
enlarged Rosneft is something BP has expressed an interest in,
and a wider share ownership would create the appearance of
serving Russia's privatisation agenda, analysts and bankers say.
A deal agreed by all sides could open the way for BP to
revive a plan to explore in the Arctic in conjunction with
Rosneft - a plan scuppered by the tycoons last year,
Relations between BP and the Soviet-born tycoons Mikhail
Fridman, German Khan, Viktor Vekselberg and Len Blavatnik -
soured last year when the quartet's AAR blocked the proposed
co-operation between BP and Rosneft, saying it violated a TNK-BP
An attempt to resolve the dispute was thwarted when AAR
turned down a $32 billion offer for its stake from BP and
Rosneft in May 2011.
Relations, which had long been shaky due to disputes over
the direction of the business, deteriorated further, with
Fridman quitting as TNK-BP's chief executive in May of this
BP put its stake up for sale the following month in an
attempt to bring the issue to a close and focus management on
another pressing issue - a resolution on billions of dollars of
potential fines and compensation payments with U.S. authorities
over the 2010 U.S. Gulf oil spill.
The move presented the four 'oligarch' co-owners of TNK-BP
with the unpalatable prospect of going into business with
Kremlin-backed Rosneft, and without the international expertise
that BP has brought to the venture.
Although until Wednesday AAR hadshowed interest in buying
BP's stake in TNK-BP, banks were attracted to finance a Rosneft
bid given Sechin's strong personal ties to Russian President
Any deal will be subject to government approval but Sechin,
in public comments last week, made it clear that Rosneft's
ambition to invest in TNK-BP enjoyed Putin's backing.
One opponent of a Rosneft buyout, Deputy Prime Minister
Arkady Dvorkovich, said that the government had yet to receive
an application to approval a deal.
"I know that commercial discussions are under way and, as I
understand, a memorandum of understanding has been signed - but
no legally-binding agreement," Dvorkovich was quoted by
RIA-Novosti news agency as saying.
The Kremlin declined to comment. A Kremlin source said Putin
had no meetings planned over the next few days to discuss