Tue, Jun 05, 2012 - Page 10 News List

BP is free to sell Russian oil joint venture: source

STATE CONTROL:Sources say sale of the entity to the state would mark a major victory for the Kremlin’s drive to strengthen its grip on natural resources

Reuters, MOSCOW

BP will press ahead and sell a stake in its Russian venture, a source close to the company said, despite a threat by its billionaire partners to block a deal that could pave the way for the Kremlin to cement its dominance over the country’s vast energy sector.

BP said on Friday it had received expressions of interest in its one-half stake in TNK-BP, Russia’s third-largest oil producer that analysts estimate is worth US$30 billion, and would pursue a sale.

A successful sale of TNK-BP to the state would raise the government-controlled share of Russia’s oil production to more than 50 percent and mark a major victory for the Kremlin’s drive to strengthen its grip on strategic natural resources a matter of weeks after Vladimir Putin returned to the presidency.

It would also sideline the four billionaires who thwarted an earlier tie-up between BP and state company, Rosneft.

“We can sell it if we want to,” the BP source said in response to reports that the AAR consortium, which represents the quartet of Russian oligarchs, would seek to veto any deal.

Sources familiar with the matter said BP has been approached by state energy holding firm Rosneftegaz, which controls a stake of more than 75 percent in Rosneft, Russia’s largest oil company.

Former Russian deputy prime minister Igor Sechin, a Putin ally who has led strategy at Rosneft for the best part of a decade, was recently named chief executive at the state oil firm and sources say has been handed a mandate to build a national oil champion capable of competing on a global scale.

The state approach has put AAR — led by banking-to-retail tycoon Mikhail Fridman — under pressure after it took legal action last year to prevent BP from signing a major offshore exploration and US$16 billion share-swap deal with Rosneft.

Fridman resigned as chief executive of TNK-BP a week ago, throwing the company deeper into a crisis of corporate governance that has left its board inquorate and blocked the payment of dividends.

Industry and political sources say the oligarch shareholders last year lobbied Dmitry Medvedev, then Russian president and now prime minister, to oust Sechin as chairman of Rosneft.

With Putin back in the Kremlin and Sechin in control of Rosneft, it appears increasingly likely that the state will assume control of TNK-BP — either by buying out BP or the oligarchs.

“The end game is that the state buys [TNK-BP],” a veteran Moscow-based executive said. “The issue is that Fridman overplayed his hand a couple of times.”

Some industry sources say that BP may end up striking a broader partnership with Rosneft along the lines of big offshore exploration deals struck recently by the Russian oil major with ExxonMobil, Eni and Statoil.

Meanwhile, sources close to AAR have said that the consortium would be willing to buy out BP for a consideration of US$25 billion.

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