BP and TNK - A New Era In Russia

On Friday, British Petrol, together with the Russian Alfa Group and Access-Renova (AAR) finalized the largest transaction in Russian corporate history by combining the Russian assets oil assets of BP and AAR in order to create a new oil and gas giant. The new entity will be the 10 biggest oil producer worldwide and BP will become the world number two.

BP will pay immediately $2.6 billion in cash to AAR and another three annual tranches of $1.25 billion in BP shares due every year at the closing date of the deal. Especially the involved Tyumen Oil Co (TNK) and Sidanco will give BP access to vast oil reserves in Siberia and that only 5 years after the two sides were involved in a heavy battle of the ownership and control of Sidanco oil, which is now part of the joint venture.

TNK-BP will be jointly owned and managed by the two sides. The crude production of the venture will rise to 1.2 million barrels per day and the company possesses 5.2 billion barrels of oil equivalent. The downstream assets consist of five refineries with total installed capacity of 1 million barrels per day and more than 2?100 retail stations in Russia and Ukraine. The workforce of TNK-BP will be 113?000.

However, the press statement on Friday revealed also two surprises. BP originally planned to merge its interested in the Sakhalin oil and gas fields off the Russian Pacific Coast with the new company. But the resistance of Rosneft, a Russian state-owned oil company and partner of BP in Sakhalin, prevented this plan. Nothing is definitive yet but the transaction is put on hold while negotiations with Rosneft continue. The second surprise was the fact that BP agreed to include TNK?s 50 percent share of Rosneft into the new company. For these assets, it will pay an additional $1.35 billion to AAR. This transaction should be completed by the end of the year. TNK together with rival Sibneft acquired Slavneft through a privatization auction last December. But at that time, it was too late to include the stake in the preliminary structure of the TNK-BP deal.

The announcement of the deal last February was broadly interpreted as a sign that the climate for business in Russian has significantly improved under the presidency of Vladimir Putin. However, the concession which BP made to Rosneft by leaving the Sakhalin interest out of the new entity indicated that there are luring political complications and that the Russian state through its companies, Rosneft and Gazprom, is increasingly ready to interfere in the Russian economy. The strengthening of Rosneft?s position has come at the same time as the Kremlin has started to attack Yukos and its head Mikhail Khodorkovsky for murky privatization deals in the 90?s. Rosneft has long been at loggerhead with Yukos and has realized that it can push harder for its interest, with such a strong backing from Moscow. It is widely known that Igor Sechin and Viktor Ivanov from the Kremlin administration are supporting Rosneft and its head Sergey Bogdanchikov. But negotiations are still going on and BP remains confident that soon, the Sakhalin interest can be included in the new company.

TNK-BP is further involved in tough negotiations with, Gazprom, another state-owned company, which wants a stake in one of the new company?s most important project, the sale of gas from the Kovykta field in Eastern Siberia to South Korea and China. BP has received assurances from the Russian government for its deal with AAR in the wake of the Yukos scandal but does not have special guarantees.




Author: Tatyana Zaharova