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Market Cheers BP Decision To Sell Stake In TNK-BP

 June 04, 2012 10:38 AM
 


(By Mani) BP Plc (NYSE:BP), one of the world's largest energy companies, revealed its intention to pursue a sale of its 50 percent stake in its Russian joint venture TNK-BP. The news was received positively by investors, although the company did not identify potential buyers and did not give an expected date for the sale.

BP said has received unsolicited indications of interest regarding the potential acquisition of its shareholding in TNK-BP, a leading Russian oil company owned equally by BP and Alfa Access Renova.

The company was formed in 2003 as the result of the merger of BP's Russian oil and gas assets and the oil and gas assets of Alfa Access Renova. BP's original investment in 2003 was $7.4 billion, and it has collected $18 billion in dividends since then. Now, the BP's stake in the joint venture is said to be worth $15 billion.

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This 50-50 JV is one of the largest oil producers in Russia with 1.7 million barrels per day and accounts for 40 percent of BP's oil reserve, 41 percent of the first quarter's 2012 oil production, and 20 percent of E&P earnings.

However, BP and its Russian partners have had a very rocky relationship, especially in recent years, which made doing business in Russia increasingly difficult. BP's Russian partners used their political influence to block a potential BP-Rosneft joint venture last year, after BP failed to meet their demands for a reported $45 billion buyout.

According to media reports, BP-Roseneft offered the Russian partners a $34 billion buyout last year, but they demanded $45 billion, which was rejected. A Russian court has ordered a new hearing into a $13 billion lawsuit brought against BP by minority shareholders after original suit was thrown out last year, according to a report on Reuters.

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"We believe TNK-BP would have been a much greater joint venture with different partners in a different country," Oppenheimer analyst Fadel Gheit wrote in a note to clients.

"We estimate BP's stake in TNK-BP could be worth as much as $42B, or $10/b, based on proved reserve of 4.2 Bbbl, excluding gas and R&M," Gheit said.

Due to mineral ownership laws in Russia, the most likely buyer for BP's stake in TNK-BP would be a JV between a major company and a Russian partner. Although an all-cash transaction is possible, a deal could include a large cash component and produce assets outside of Russia.

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