BP In Talks With Putin Over Rosneft Stake

BP is exploring a deal to sell its stake in its conflict-plagued Russian joint venture that could result in it owning a substantial stake in Rosneft, the country's state-controlled energy giant.

I understand that BP has signalled that it is open to the idea of selling its 50% stake in TNK-BP to Rosneft in exchange for cash and shares in the Russian company.

Bob Dudley, BP's chief executive, and Carl-Henric Svanberg, its chairman, held talks yesterday with Vladimir Putin, the Russian president, and Igor Sechin, the chief executive of Rosneft and former Russian energy minister.

People familiar with the talks say that BP outlined its long-term commitment to operating in Russia despite the decision taken by the British company earlier this year to sell its TNK-BP shareholding.

In return, Mr Putin is said to have pledged the Kremlin's co-operation and that of Rosneft with BP.

Among the options at a preliminary stage of discussion is a transaction that would involve Rosneft issuing about $10bn in shares to BP.

Bloomberg reported today that Rosneft had approached non-Russian banks about arranging up to $15bn in loans to finance the purchase of the TNK-BP stake.

Given that analysts value BP's TNK-BP stake at up to $25bn, which would mean Rosneft issuing approximately $10bn-worth of its shares to BP, equivalent to a stake of between 7% and 10%, dependent upon the value of an enlarged Rosneft.

Analysts have speculated that a cash-and-shares deal is likely to be explored by the two companies, but Sky News has learned that such a transaction is under active consideration between the two sides.

BP already owns 1.3% of Rosneft. Any deal involving it being paid partly in shares for the TNK-BP would cement its presence in Russia and quell suggestions that it might exit the country altogether.

Investors may be sceptical about the merits of BP taking a larger stake in Rosneft, largely because the British company's financial liabilities relating to the Gulf of Mexico oil spill in 2010 have still not been quantified.

It has already sold more than $30bn of its assets to cushion the blow of the eventual financial penalties. A settlement with the US government is unlikely ahead of November's presidential election.

Any transaction in Russia involving BP taking a larger stake in Rosneft would also revive uncomfortable memories of the deal originally envisaged between the two companies.

Unveiled in January 2011, BP would have owned 9.5% of Rosneft, while the Russian company would have held about 5% of BP.

The attraction of that agreement for BP was the right to explore the vast energy reserves of the Arctic shelf, although I'm told that Arctic exploration does not form part of the current discussions about Rosneft and the TNK-BP shareholding.

Last year's deal was scuppered by AAR, a consortium of oligarchs who control the other half of TNK-BP.

Under the terms of the TNK-BP shareholder agreement, BP cannot strike a deal with anyone other than AAR until after a mid-October deadline.

AAR has proposed buying half of BP's 50% stake in TNK-BP, although BP is not interested in remaining as a partner of the oligarchs following several years of turbulent relations.

BP is being advised by Goldman Sachs, Lambert Energy Advisory, Morgan Stanley and Renaissance Capital, a Russian investment bank.

A BP spokesman said it was too early to determine the fate of BP's TNK-BP stake.