BP May Sell Stake in Russian Subsidiary After Latest Round of Trouble

June 1st, 2012 by Trefis Team
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BP (NYSE:BP) may choose to sell its stake in TNK-BP, after TNK-BP’s CEO Mikhail Fridman resigned earlier this week, signalling a deeper divide between the company’s stakeholders. [1] BP holds a 50% stake in TNK-BP, which analysts estimate could net the British oil major around $3o billion. BP’s announcement that it was considering an unsolicited proposal for its holding in TNK-BP is at odds with its earlier position of not being willing to part with its stake in the company despite recurring corporate governance issues. TNK-BP accounts for 30% of BP’s overall output and 40% of its global oil production. TNK-BP was also seen as a vehicle for BP to explore Russia’s Arctic reserves after the government showed an inclination towards allowing local private companies to access the region. (See: BP’s Russian Troubles Take a New Turn As TNK-BP CEO Resigns)

We have a $59.51 price estimate for BP, which is at a significant premium to its current market price.

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Major move

According to a BP spokesperson, evaluation of a potential sale could take a few months and the company said that it could not guarantee whether a transaction would take place. BP has held on to its stake in the Russian subsidiary despite having undertaken a major asset sale program since the Gulf of Mexico spill. TNK-BP was held as a major cash generating machine for BP and accounted for a significant portion of its global output.

However, despite the prolific production record of the company, recurring problems with TNK-BP’s Russian partners, have dogged the company’s operations. Most recently, BP’s effort to directly tie up with Russian state producer Rosneft in an effort to explore blocks in the Arctic, created a major rift between the parties. BP’s Russian  partner Alfa Access Renova, claimed that BP’s deal with Rosneft violated the shareholder agreement between them. Although BP withdrew from the Arctic deal, the dispute has carried on, hurting the company’s functioning.

According to sources, the ongoing dispute between BP and Alfa Access has affected the normal functioning of TNK-BP. TNK-BP has been unable to payout the dividends for 2011 because of conflict. According to some experts, the ongoing corporate governance feud strengthens the case for BP to pull out from the joined venture. The sell off could have a major impact on BP’s output levels, which have already dropped since the Gulf of Mexico disaster. Analysts are expecting BP to net more than $30 billion from the sale. [1]

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Notes:
  1. BP to Seek Sale of Russian Venture TNK-BP, NYT [↩] [↩]