September 29, 2023

BP Scrambles to Salvage Rosneft Deal as Deadline Nears

To keep the deal from collapsing, BP had either to convince Rosneft to extend the deadline, or to find a compromise with the billionaire shareholders in its existing Russian joint venture, TNK-BP, who have opposed the Rosneft deal.

BP’s partners in TNK-BP took legal steps to block the Rosneft agreement, valued at about $7.8 billion, because they said it violated terms of their own venture with BP in Russia.

BP’s options to rescue the deal have diminished over the last month after the quarrel with TNK-BP shareholders reached an arbitration court, which has delayed the Rosneft agreement indefinitely.

The TNK-BP partners rejected an earlier attempt by BP to reach a compromise, and Rosneft said on Wednesday that the April 14 deadline would stay in place. BP said it continued to consider its options.

Adding to the pressure on BP, its chief executive, Robert W. Dudley, is expected to face some angry investors at the company’s annual shareholder meeting in London on Thursday. Some investors, including the California Public Employees’ Retirement System, have already said they would voice their disapproval of how BP handled the oil spill in the Gulf of Mexico last year. Now, Mr. Dudley is also likely to face criticism for failing to anticipate serious opposition in Russia to the Rosneft deal.

“I want a quick resolution,” said George Godber, a fund manager at the investment firm Matterley in London and a BP investor.

Mr. Godber said that he had welcomed the initial agreement with Rosneft but that the subsequent problems had damaged BP’s and Mr. Dudley’s reputations. “It’s a millstone and it’s hung poorly,” he said.

Mr. Dudley was betting that the Rosneft deal, which the companies agreed to in January, would give BP a new growth opportunity after the rig explosion in the Gulf of Mexico made business more difficult in the United States.

Instead, BP’s legal battle with its Russian partners raised larger questions about the British oil company’s future in Russia, the world’s biggest oil producing country. One option to rescue the deal with Rosneft could be for BP to allow TNK-BP to take its place in the share swap and exploration agreement. That would reduce BP’s potential profits but would still give the company access to the sought-after arctic exploration licenses through its joint venture.

Or, perhaps, BP could simply walk away from a linkup with Rosneft. But competition for access to Russia’s offshore oil reserves is fierce, analysts say, and it would not be long before Rosneft could find a new partner in Royal Dutch Shell, Total or other BP rivals.

BP could also try ending its dispute in Russia by buying the stake in TNK-BP it does not already own. But the half of that joint venture is estimated to be worth more than $25 billion, a large sum for BP at a time when it is still paying for costs related to the oil spill in the gulf.

Another option would be for BP to sell its stake in TNK-BP. But that is seen as less likely by investors because TNK-BP contributes about a third of production to BP, and its dividends have been an important source of income.

Some analysts said that there might be more at stake with the Rosneft deal than BP’s Russian operation. A 29 percent drop in BP’s share price since the Gulf of Mexico accident and a smaller but more lucrative asset portfolio following some recent disposals could leave BP vulnerable to takeover offers from larger rivals, they said.

BP’s shares rose 0.6 percent in London on Wednesday. They have been little changed since the beginning of this year, compared to shares in Shell, which have gained 5 percent during that period.

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