BP has announced the terms for the sale of its stake in the troublesome TNK-BP business to Russian state oil firm Rosneft, in what some observers have said appears to be a better-than-expected deal regarding the cash portion of the transaction.
The deal itself is being done in two steps: initally, BP will get $17.1bn in cash and shares representing 12.84% of Rosneft; BP then intends to use $4.8bn of the cash consideration to purchase a further 5.66% of Rosneft from the Russian government at a price of $8 a share.
On completion of the deal BP will hold 19.75% of Rosneft shares, including BP's existing holding of 1.25%, and to have received $12.3bn in cash.
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This deal catapaults Rosneft into the major oil league, while also giving BP a large minority stake in Rosneft. BP expects to have two seats on Rosneft's nine person main board.
In accordance with the heads of terms, BP and Rosneft have an exclusivity period of 90 days to negotiate fully-termed sale and purchase agreements. After signing definitive agreements, completion would be subject to certain customary closing conditions, including governmental, regulatory and anti-trust approvals, and is currently anticipated to occur during the first half of 2013.
In addition, BP will agree not to dispose of any of the Rosneft shares acquired in the transaction for at least 360 days following the completion of the transaction.
BP's Chairman Carl-Henric Svanberg said: "This is an important day for BP. Russia is vital to world energy security and will be increasingly significant in years to come. Russia has also been an important country for us over the past 20 years. Our involvement has moved with the times. TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia.
"Rosneft is set to be a major player in the global oil industry. This material holding in Rosneft will, we believe, give BP solid returns. We consider that this is a deal which will deliver both cash and long term value for BP and its shareholders. It provides us with a sustainable stake in Russia's energy future and is consistent with our Group strategy.
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