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Russia’s Rosneft buys out TNK-BP

Russian state-owned oil giant Rosneft strengthened its hold on the country’s lucrative oil industry when it sealed a $61 billion deal, buying TNK-BP, the joint venture between a group of Russian oil oligarchs and the British energy company.

BP is not ending its 15-year involvement in Russia though as it is selling its 50 per cent stake in TNK-BP to Rosneft for $17.1 billion in cash, and a 12.84 per cent stake in the Russian oil group. It’s also planning to use some of the money it’s reaped from the sale to raise its stake in Rosneft to 19.75 per cent.

In a parallel development, Rosneft said it had agreed to buy the other 50 per cent in the joint venture from AAR, for $28 billion, and that the deal was “entirely independent of the transaction with BP.”

Following the deal, Rosneft will leapfrog ExxonMobil Corp to become the world’s largest publicly traded producer of oil and gas, in terms of output — ExxonMobil’s latest earnings show its daily output at 4.2 million, below the expanded Rosneft’s projected 4.6 million.

It said it would finance the deal with its own cash as well as new borrowings.

Rosneft CEO Igor Sechin broke the news about the deal on Monday afternoon to President Vladimir Putin, telling him that the deal would be worth about $61 billion.

“This is a good big deal which is important not only for Russia’s energy sector but for the entire Russian economy,” Putin said in remarks carried by Russian television.

Russia is an important part of BP’s business, accounting for a quarter of its oil production. BP Chief Executive Bob Dudley has looked to the country’s vast oil resources as a key ingredient to the company’s recovery from the disastrous oil spill in the Gulf of Mexico. BP is set to have two seats on Rosneft’s nine-member board.

Ildar Davletshin, an oil and gas analyst at Renaissance Capital, said the deal “strategically looks very positive for BP” which has replaced “a private partner for a strategic national company which has much bigger access to resources in Russia and has much bigger political support in this country.”

Davletshin said the deal should help ease concerns that Rosneft’s strategy is driven by political considerations.

Rosneft has been involved in an array of overseas projects largely viewed as unprofitable but designed to prop up the Kremlin’s foreign policy.

Davletshin said Rosneft will more likely be run “in the interests of shareholders” rather than serving the Kremlin’s political agenda since BP will have two board members.

The TNK-BP joint venture has been troublesome — albeit lucrative — for BP.