Rosneft eyes BP cash and equity deal

The UK oil group is locked in talks with both Rosneft and its Russian billionaire partners as it seeks to exit the TNK-BP joint venture that has brought it vast returns but also bitter corporate strife.

Rosneft could make an offer after completing due diligence on TNK-BP, a person familiar with the matter said. He added that Rosneft could pay more than $20bn in a cash-and-share deal which would leave BP with a sizeable stake in the state-owned energy group.

But another person familiar with the situation said BP will only be able to enter into serious negotiations with Rosneft once it is clear that the Russian government backs a deal.

Selling out of TNK-BP would free BP to pursue a wide-ranging exploration deal with Rosneft. BP struck such an alliance with the Russian national champion last year but it was blocked in the courts by BP’s billionaire partners in TNK-BP.

Reviving a partnership with Rosneft would be a vindication for Bob Dudley, BP chief executive, who was sharply criticised by shareholders for the breakdown of last year’s deal.

Mr Dudley briefed Russian president Vladimir Putin on the negotiations during a meeting late on Tuesday also attended by Igor Sechin, the head of Rosneft, and by Carl-Henric Svanberg, BP chairman. A BP spokesman said the company "re-emphasised its commitment to continue working in Russia”.

Rosneft approached more than a dozen lenders in London asking for bridge and term-loan proposals by October 1, people familiar with the matter said.

Winning Mr Putin’s support is critical for a transaction that has thrown BP into the centre of Kremlin infighting over control of the energy sector. Arkady Dvorkovich, deputy prime minister, said last week that the Russian government was opposed to any deal that would increase Rosneft’s share in the country’s energy sector.

Dmitry Medvedev, prime minister, is battling Mr Sechin for control of the industry.

Mr Sechin was recently appointed head of a special presidential commission to oversee the energy sector and was also appointed chairman of Rosneftegaz, the state company that holds the government’s majority stake in Rosneft and a 10.6 per cent stake in Gazprom.

"Only the big man in the middle will make the final decision,” said one senior western banker, referring to Mr Putin.

Under TNK-BP’s shareholder agreement, BP must conduct good-faith negotiations with its billionaire partners’ vehicle, AAR, for a 90-day period that expires in mid-October. Although these discussions do not preclude BP from talking to other interested parties, it cannot do a deal with anyone else in that period. The UK oil group must also seek AAR’s permission for the transfer of any data to other bidders.

AAR has so far indicated that it is only interested in buying half of BP’s 50 per cent stake.

People familiar with the matter said BP’s discussions with Rosneft and AAR could drag on for months, with no deal materialising until the end of the year.

By Catherine Belton in Moscow and Guy Chazan in London 

Financial Times