BP Sells
Sale of 50% stake in TNK-BP to Rosneft
BP Plc plans to sell its 50% stake in TNK-BP to Rosneft, the major Russian state-controlled integrated oil and gas company, for about $27 billion in cash and stock.
The proposed sale of the TNK-BP to Rosneft consists of a cash element of $17.1 billion and 1,360,449,797 Rosneft shares. Shares in Rosneft traded at close of business on the bid date (Oct. 18) at $7.13.
Rosneft will pay $17.1 billion in cash and 12.84% of its shares to BP, which intends to use $4.8 billion of the cash portion to buy an additional 5.66% of Rosneft from the Russian government. Once the deal closes, BP expects to hold 19.75% of Rosneft shares, including its existing stake of 1.25% and to have a net $12.3 billion in cash. At this level of ownership, BP expects to be able to account for its share of Rosneft’s earnings, production and reserves on an equity basis. In addition BP expects to have two seats on Rosneft’s nine-member board of directors.
The deal will not close unless the Russian government agrees to sale the 5.66% stake in Rosneft. Closing is expected in the first half of 2013.
"This is an important day for BP. Russia is vital to world energy security and will be increasingly significant in years to come. Russia has also been an important country for us over the past 20 years. Our involvement has moved with the times. TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia,” said BP's chairman Carl-Henric Svanberg.
"Rosneft is set to be a major player in the global oil industry. This material holding in Rosneft will, we believe, give BP solid returns. We consider that this is a deal which will deliver both cash and long term value for BP and its shareholders. It provides us with a sustainable stake in Russia’s energy future and is consistent with our Group strategy.”
"BP intends to be a long term investor in Rosneft – an investment which I believe will deliver value for our shareholders over the next decade and beyond,” said BP's group chief executive Bob Dudley.
BP intends to retain the shares resulting from the proposed transaction, and will evaluate how the cash proceeds will be utilised. At minimum BP's intention is to offset any dilution to earnings per share as a result of the sale of its interest in TNK-BP as well as continue with its progressive dividend policy.
BP supports Rosneft in its plans to acquire additional equity stakes from other shareholders in TNK-BP.
Morgan Stanley & Co. Ltd. is acting as principal financial advisor to BP on the proposed transaction. UBS Investment Bank is acting as financial advisor and corporate broker to BP. Goldman Sachs International, Lambert Energy Advisory Ltd. and Renaissance Capital have also each acted as financial advisors. Credit Suisse Securities (Europe) Ltd. has provided a fairness opinion to BP's Board on the proposed transaction. Linklaters LLP are acting as principal legal advisors on the proposed transaction. TNK-BP is a vertically integrated Russian oil company with a diversified upstream and downstream portfolio in Russia and Ukraine.
TNK-BP is Russia’s third largest oil producer, with about 50,000 employees. It and operates in nearly all of Russia's major hydrocarbon regions, including West Siberia (in the Tyumen, Khanty-Mansiysk, Yamal-Nenetsk and Novosibirsk Regions), the Volga-Urals (in the Orenburg and Saratov Regions) and East Siberia (in the Irkutsk Region). Average daily production of TNK-BP in 2011 was 1.987 million barrels of oil equivalent (BOE) per day, including the interest in Slavneft.
In 2011 Rosneft, a fully integrated national oil and gas company, produced 2.45 million barrels a day of oil, up 52 per cent since 2006. As at the end of 2011, Rosneft’s proved developed reserves stood at 9.96 billion barrels of oil equivalent (BOE) with proved undeveloped reserves of 8.39 billion BOE. Rosneft’s proved oil reserve replacement ratio was 127 per cent in 2011. It has begun a program to develop its substantial tight oil reserves, recently estimated at 5.8 billion barrels.
Last year Rosneft’s net income totalled $10.8 billion. Rosneft’s dividend for 2011 was 25 per cent of IFRS net income.
BP has a long relationship with Rosneft including an alliance that started in 1998 to explore the Russian continental shelf offshore Sakhalin. Rosneft and BP are 50/50 owners of the 530,000 barrels a day German refining joint venture Ruhr Oel GmbH.
Analysts from Jefferies Global Research said the long-term benefit to BP depends on how well Rosneft performs in the future.
“We think the key to the performance of the shares is now BP’s future strategy, ie what it invests in and how competitive it is versus other majors, which are growing annual production by 2-3% on average. BP still also has the Macondo uncertainty, which we think will continue to deter some investors. Overall, we think the risks of maintaining such a large stake in Russia will offset the strategic benefits of the deal, hence our continuing Hold rating on the stock,” the report stated.