BP: from frying pan to the fire?

published 25 October 2012

BP has sold its 50% stake in its Russian joint venture TNK-BP to Kremlin-controlled oil giant Rosneft for $26bn. BP has ended up with $12.3bn in cash and will have a near-20% stake in Rosneft, along with two members in a nine-strong board. Rosneft has also bought the other half of the venture from the oligarchs that controlled it. That means it is now set to become the world's largest oil and gas group by volume produced.

What the commentators said

TNK-BP "has been vital to keeping BP afloat in recent years", said Andrew Peaple in The Wall Street Journal. It was worth 29% of BP's oil and gas output last year and threw off almost enough cash to cover last year's dividend payout. With this deal, however, BP will grow its oil reserves.

A $26bn price tag looks impressive considering that BP put $8bn into TNK-BP in 2003 when it was set up, and took out a total of $19bn in dividends, said Lex in the FT. What's more, lucrative as the arrangement was, dealing with the oligarchs was "a nightmare". Now BP gains "a well-connected partner".

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The idea is that BP will gain access to Russia's huge energy reserves, especially those in the Arctic, said Robert Peston on BBC.co.uk. And its stake should become more valuable as "vast, lumbering" Rosneft "becomes more efficient" by tapping BP's skills and expertise, and taking on board more Western corporate governance conventions. Still, some shareholders think the BP board is "bonkers" getting into bed with the Kremlin, given the continual skirmishes with the TNK oligarchs.

Life as a minority shareholder in a President Putin-controlled Rosneft will hardly be "a bed of roses", said Nils Pratley, and having a mere two board members isn't "a solid power base in the event of quarrels". Putin may be keen on the deal now, as one major shareholder told The Daily Telegraph, but "if he changes his mind or is succeeded by someone less friendly, then all bets are off". Rather than turning a corner, then, concluded Ian King in The Times, BP could be going from "frying pan to fire".