May 27, 2024

No BP Word As Deadline Slides By

With the companies issuing no statements as the deadline neared, some analysts took the lack of an announcement as indication that the two sides would continue to negotiate revised terms for the deal, which was announced in January by the chief executive of BP, Robert W. Dudley, but quickly hit a legal snag when Russian shareholders in a separate BP partnership filed a legal action to block it.

People close to BP said they expected the company to issue a statement Tuesday morning in London.

Shares of BP fell 1 percent in London on Monday amid concern that the Rosneft deal could collapse — and with it BP’s plan to recover from last year’s Gulf of Mexico debacle by expanding into Russia.

The two companies originally planned to complete that deal a month ago, but had extended the deadline to midnight Monday, London time, to give BP time to resolve its dispute with its Russian partners in a separate venture called TNK-BP.

Those Russian partners, operating through a holding company known as AAR, contend that BP violated terms of the partnership in forging the agreement with Rosneft. An international arbitration court in Stockholm that has handled the AAR complaint ruled recently that BP-Rosneft could complete the part of the deal involving a stock swap but would have to include TNK-BP in the Arctic exploration part of the agreement.

For the deal to proceed, Rosneft and BP would presumably have to renegotiate terms and either include TNK-BP or somehow buy out AAR’s stake.

A collapse of the Rosneft deal would be a major blow to BP’s effort to win back the confidence of investors after the company’s disastrous oil spill last year in the Gulf of Mexico, some analysts said. The deal was to give BP access to the Kara Sea, one of the icy backwaters of the Arctic Ocean that has recently become an object of keen attention by the international energy industry as a new oil frontier.

“This deal is very important,” said Doug Youngson, an analyst at Arbuthnot Securities in London. “This is how BP in theory was going to come back after the Gulf of Mexico accident.”

After the deal was announced in January, and was publicly blessed by Russia’s prime minister, Vladimir V. Putin, and president, Dmitri A. Medvedev, BP’s stock rose. The company seemed poised to secure access to the Arctic at a time when lawsuits and regulations in the United States and Canada were delaying drilling, and when in particular BP’s chances of winning new offshore licenses in North America appeared dim.

But the AAR partners in TNK-BP sued within days to block the arrangement and demanded to be part of the new business. AAR rejected an offer from BP in January to pay it in oil assets and cash to remove its objections. AAR later turned down an offer by BP to buy its stake in TNK-BP.

Under the conditions set down by the Stockholm court, BP would still retain a financial interest in the Arctic deal but would lose some operational control. But any revised terms would hinge on Rosneft’s approving the involvement of TNK-BP, whose Russian partners are not necessarily in accord with the Kremlin leaders who ultimately oversee Rosneft.

Rosneft has said it would prefer to work with BP directly, rather than through TNK-BP. This has left the three parties — BP, Rosneft and the AAR partners — at an impasse.

Some analysts have described three possible outcomes for BP. One would involve Rosneft either agreeing to the changed terms, or at least extending the deadline again, which would give the three parties more time to find a compromise.

Another possibility could be BP’s resolving the dispute with AAR by buying the stake in the TNK-BP joint venture it does not already own. Such a step would be costly for BP, which is still paying for the Gulf of Mexico spill, but Rosneft could take a part in any buyout.

And it is unclear whether the Russian shareholders in TNK-BP would sell. BP said a month ago that it had made a cash offer of about $27 billion to the shareholders, but they rejected it. The AAR partners have valued TNK-BP at about $70 billion, meaning a buyout would cost Rosneft and BP about $30 billion.

A third possibility, of course, would be the collapse of the BP-Rosneft deal. Yet, some analysts said that BP could then still try to strike a new pact with Rosneft.

Rosneft, though, would also be free to open talks with other major international oil companies to explore the Kara Sea if its deal with BP collapsed. But while other Big Oil companies might be eager to gain Kara Sea access, it is not clear whether any company other than BP — financially burdened by its Gulf of Mexico liabilities — would agree to sell part of itself to the state-owned Russian oil company.

A spokesman for BP in London declined to comment, as did a spokesman for the group of Russian billionaires who are shareholders in TNK-BP. Rosneft representatives were not available.

Oil analysts in Moscow have said AAR, by becoming an obstacle to this pivotally important deal for both BP and the Russian government, could be positioning itself to win a higher buyout price. AAR representatives have said that was not their motivation in blocking the deal.

Despite a quarrelsome history with its partners, BP’s Russian venture has been a success for years. After contributing about $6 billion in cash and assets to the founding of the TNK-BP venture in 2003, BP has since then made more than $14 billion in dividends from it — it still retains 50 percent of the assets.

With BP’s operations in Russia becoming nearly as important to the company as those in the United States, it was logical that in the wake of the Gulf of Mexico oil spill last year BP would seek to expand its Russian operations.

The question now is whether that logic can play out.

Julia Werdigier reported from London and Andrew E. Kramer from Moscow.

Article source:

Speak Your Mind