BP in Talks With Rosneft Over TNK-BP Stake Sale; Could Revive 2011 Partnership Plans

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BP (NYSE:BP) is in talks with Russian state oil player Rosneft over the possible sale of its 51% stake in TNK-BP. [1] The sale could fetch BP an estimated $25-30 billion and could pave the way for BP to explore a partnership with Rosneft targeting offshore oil and gas reserves in the Arctic. BP announced that it was looking at options to sell its stake in TNK-BP after the latest management tussle with its Russian partners, which led to the resignation of TNK-BP’s CEO. The subsidiary accounts for a significant portion of BP’s oil and gas output.

We are revising our $59 price estimate for BP, which is at a 50% premium to its current market price.

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BP’s earlier plans to partner with Rosneft to explore Russian Arctic reserves were jettisoned in 2011 after objections from its partners in the TNK-BP venture. Since then, the conflict between BP and its partners has exacerbated, resulting in lawsuits against the British oil major. TNK-BP accounts for about 40% of BP’s global oil output and 27% of its total oil and gas production. The joined venture also contributes to a significant portion of BP’s annual dividends. However, the JV agreement prohibits BP from independently pursuing other partnerships in Russia, limiting its options for expansion.

Presently, only state oil companies like Rosneft are being allowed to explore Russia’s Arctic reserves. Rosneft has actively looked to partner western oil companies for access to technology. After BP pulled out of the talks in 2011, Rosneft has signed a pact with Exxon Mobil to explore blocks in the South Kara Sea. A sale of its stake in TNK-BP could result in a significant drop in BP’s global production in the short  term. However, future exploration deals in Russia could help the company recover its output from the country. BP could also use the proceeds from the sale to finance future exploration and production activities in other geographies.

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Notes:
  1. Rosneft in Talks With BP on TNK-BP Stake, WSJ []
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