LONDON/MOSCOW (Reuters) - A Russian state firm has offered to buy BP Plc’s (BP.L) half share in its Siberian joint venture, a source said on Friday, in what would amount to a stunning reversal for the British firm and a bold assertion of Kremlin control over the oil sector.
If a state entity acquires the stake, worth around $30 billion, it would signal a dramatic reorganization of Russia’s oil industry, the world’s largest, weeks after Vladimir Putin returned to the presidency.
Igor Sechin, CEO of state oil major Rosneft (ROSN.MM), denied considering buying out the stake in the TNK-BP TNBP.MM joint venture, which accounts for nearly a third of BP’s output and has since 2003 been a cornerstone of its global strategy.
But two sources said Russian state energy holding company Rosneftegaz ROSNG.UL - which controls Rosneft - could serve as a vehicle to do the deal. “(Sechin) will try to buy this part through Rosneftegaz or another instrument,” one source close to Rosneft told Reuters.
Selling out would cut BP loose from hostile partners and free it from an investment that had restricted its ability to pursue other opportunities in Russia.
BP did not say who had made what it called “unsolicited approaches” to buy the stake, but a source close to the matter said one of Russia’s state-owned oil and gas firms was involved.
A source close to Gazprom (GAZP.MM), the state gas export monopoly, said he was not aware of any approach. Kremlin-friendly Surgutneftegas (SNGS.MM), whose $28 billion cash pile could back a deal, according to some analysts, declined comment.
TNK-BP is Russia’s No.3 oil producer and BP’s stake is one of the biggest foreign investments ever made in the country. It has earned BP huge profits, but has long been plagued by legal battles between BP and its Russian partners, the AAR consortium of billionaires.
A second source close to the situation said BP’s board met on Thursday to discuss a specific approach and decided to press ahead with talks. The source did not say if that bid was Russian.
Putin, who returned to the presidency he occupied from 2000-2008, has long discouraged foreign companies owning strategic assets, limiting TNK-BP’s ability to expand.
For BP, selling out would mean giving up annual dividends which hit $3.7 billion last year and losing around 30 percent of its oil and gas production, but would give it a cash pile to explore higher-growth ventures, perhaps even in Russia.
Funds raised would also help to fund the cost of cleaning up the 2010 Gulf of Mexico oil spill.
Given the Kremlin’s desire to exert influence over the oil sector, analysts and bankers pointed towards state-backed players as the most likely buyers.
“We believe that the eventual buyer will have to be Russia - a 2 million barrels per day company ... is just too strategic for Russia to let fall into foreign hands,” said Oswald Clint, oil analyst at brokerage Bernstein.
Sechin, a powerful former deputy prime minister, was appointed last week as CEO of Rosneft with what a source close to the group said was a mandate to transform the company into a national champion capable of competing on a global scale.
In Putin’s last act as prime minister, he nominated Sechin to the board of Rosneftegaz, casting his trusted aide in dual executive and supervisory roles that could facilitate industry consolidation both inside Russia and abroad.
Putin, visiting Germany on Friday for talks with Chancellor Angela Merkel, took Sechin with him in his limousine from Berlin airport and the pair were seen engaged in close talks.
Sechin avoided an outright denial of interest in BP’s TNK-BP stake when asked by reporters, saying: “We need to study all (the) information and only then take a decision.”
AAR said it had received notice from BP of intent to sell the stake, and repeated its own offer to increase its holding.
BP’s relationship with AAR is governed by a shareholders’ agreement, but sources said this was unlikely to hinder a BP sale. BP said any deal would comply with the agreement.
Shares in BP rose as much as 5 percent before easing back to close 1.8 percent higher. Shares in TNK-BP’s listed unit, which has a small free float, slumped by 10 percent on fears that a state takeover would be hurt minority shareholders.
“BP should exit and reinvest in more profitable areas with less political risk, if it can achieve something close to fair value for the stake,” analyst Iain Reid at brokerage Jefferies said.
The proposed sale is an admission that attempts to reach an accommodation with AAR had failed. “We’ve worked hard to come up with a solution but haven’t been able to do so,” a third source close to the situation said.
BP and AAR have had disputes almost since the creation of TNK-BP in 2003. In 2008, BP Chief Executive Bob Dudley, then CEO of TNK-BP, was forced to flee Russia after what he described as a campaign of harassment from AAR.
Last year, tension flared when BP signed an Arctic exploration deal with Rosneft. An arbitrator ruled that deal was in contravention of the shareholder agreement, under which BP was barred from dealings in Russia outside the joint venture.
BP offered to buy AAR out for around $32 billion, with a plan to subsequently sell the stake on to Rosneft, to settle the spat, BP sources said at the time. But the deal fell apart and the two partners landed in court.
One of the AAR billionaires, Mikhail Fridman, resigned on Monday as chief executive of TNK-BP, citing a breakdown in relations with BP, though BP sources said they believed the resignation was a tactic to force BP to buy out AAR’s stake.
In a newspaper interview published on Thursday, Fridman said he would consider a sale.
AAR had previously mooted buying out BP and sources close to AAR have said they would be prepared to pay $25 billion for the stake.
BP initially invested almost $8 billion in cash, shares and assets to form TNK-BP with AAR, since when it has yielded BP $19 billion in dividends - on average around 10 percent of BP’s annual profits - despite high Russian taxes on oil production.
Shortly after the venture was formed, Russia became more hostile to foreign and private-sector investment. And the Kremlin’s preference to reserve larger fields for state-controlled groups has limited TNK-BP’s ability to expand.
Although BP said it received more than one approach, it is hard to imagine private sector bidders attempting to win the stake, especially if the Kremlin wants a state firm to buy it.
However, even state players may have problems bidding. Gas export monopoly Gazprom has big investment obligations and Troika’s Nesterov said even Rosneft could also struggle to raise the cash needed.
Additional reporting by Melissa Akin, Megan Davies, Katya Golubkova, Denis Pinchuk and Polina Devitt in Moscow, with Gleb Bryanski in Berlin and Neil Maidment in London; Editing by Peter Graff and David Holmes