December 5, 2022

ArcelorMittal to Invest in French Steel Site, Keep Jobs

PARIS (Reuters) – Steelmaker ArcelorMittal will invest 180 million euros in its Florange steelworks in northern France under a deal with the government to save jobs at two shuttered blast furnaces, Prime Minister Jean-Marc Ayrault said on Friday.

Ayrault said the investment, to be made over five years, meant there would be no layoffs at the site, although the two blast furnaces would not be restarted for now given flagging demand for steel in Europe.

“The government decided against the idea of a temporary nationalization,” Ayrault told reporters, three hours before a midnight deadline to strike a deal, adding: “There will be no redundancy plan.”

(Reporting by Brian Love; Writing by Catherine Bremer)

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BP Deal With Russian Oil Giant Collapses

After a Monday midnight deadline passed, BP’s proposed deal with Rosneft lapsed as the company failed to reach a last-minute agreement with Rosneft and resolve a dispute with BP’s Russian partners in a separate joint venture, TNK-BP.

The TNK-BP partners had taken legal action to block the BP-Rosneft deal almost as soon as it was announced in January.

BP said Tuesday it would continue to talk to both Rosneft and its partners in TNK-BP about collaborating in the future. But some analysts said salvaging the original deal would be difficult.

“This opportunity is probably not going to happen” for BP, said Jane Coffey, a fund manager at Royal London Asset Management. “It leaves them without a strategy and calls into question the focus of the management.”

The Rosneft deal was supposed to help BP turn a page after the disastrous oil spill in the Gulf of Mexico. It was also the company’s first big transaction since Robert W. Dudley took over as chief executive at the end of last year and was part of his strategy to focus on BP’s exploration capabilities in faster-growing markets like Russia and India.

Under the proposed arrangement with Rosneft, BP would have gained access to the Kara Sea, an arm of the Arctic Ocean that the energy industry considers to be a new frontier in oil exploration. It would also have left BP and Rosneft with small equity stakes in each other.

But the Russian shareholders in TNK-BP, billionaires who operate through a holding company called AAR, had argued before an arbitration court in Sweden that Rosneft deal violated the terms of their joint venture with BP. That court recently ruled that the BP-Rosneft share swap could proceed but that TNK-BP should have an opportunity to participate in the exploration part of the deal.

But BP was unable to renegotiate the deal with Rosneft and work out a resolution with AAR by the Monday deadline BP and Rosneft had agreed to.

Some investors evidently saw the lapsed deal as positive news, because the Rosneft share swap would have diluted the value of BP’s stock. BP shares rose more than 1 percent in London on Tuesday before closing 0.8 percent lower.

In negotiations over the weekend and through Monday, BP had discussed buying out its partners in TNK-BP for about $32 billion. But BP could not have raised that amount by itself and Mr. Dudley said he was not willing to cede a significant stake in BP itself to the Russian oligarchs as part of a buyout.

Rosneft, for its part, was unlikely to help buy out the TNK-BP partners, which would have entailed handing over cash or stock to a group of Russian billionaires whose interests are not necessarily the same as those of the Kremlin leaders who ultimately oversee Rosneft.

“A solution has not been found at this time, although talks will continue,” BP said in a statement on Tuesday. Mr. Dudley said that BP remained “committed to Russia, to working constructively with AAR in TNK-BP, and to our existing good relationship with Rosneft.”

Rosneft rejected BP’s request to extend the deadline for reaching an agreement for a second time in two months, two people with direct knowledge of the talks said. They declined to be identified because the talks were not public. A spokeswoman for Rosneft declined to comment.

Rosneft is now free to open talks with other international oil companies to explore the Kara Sea. There is a short list of potential partners — oil majors with both offshore expertise and experience working in Russia.

According to Valery Nesterov, an oil analyst at Troika Dialog, a Moscow investment bank, the likely candidates are Statoil, which is partly owned by the Norwegian government; Exxon Mobil; Chevron; Royal Dutch Shell; and Total.

Rosneft’s ambitions in the Arctic go well beyond the BP deal. The Russian government has awarded Rosneft broad authority to negotiate multiple exploration deals with foreign companies. Under a no-bid process, Rosneft won licenses to 17 exploration blocks in the Arctic. BP’s proposed deal covered only two. Soon after the BP deal was announced, Rosneft’s chief executive, Eduard Y. Khudainatov, said he was negotiating similar joint venture agreements with other major oil companies intent on exploring the Arctic continental shelf off Russia’s northern coast. That list included Shell, its chief executive confirmed in an interview at World Economic Forum in Davos, Switzerland, in January. In the Black Sea, Rosneft in the past year announced joint venture agreements with Chevron and Exxon.

Rosneft, though, is unlikely to find an international major other than BP willing to sell a stake in itself to the Russian national oil company, industry analysts say. BP was willing to dilute its shares when others might not because BP was weakened financially. Also, BP was desperate to show it had growth prospects outside of North America, where its future was dimmed by lawsuits.

Because the BP deal was the first test of Rosneft’s Arctic policy, oil analysts were baffled over why the Kremlin allowed the agreement to unravel, given the region’s importance to Russia’s future oil production. The Kremlin officials who control Rosneft will decide how the company proceeds now, Mr. Nesterov said.

“The decision will be decided on the political level, and maybe after presidential elections,” he said. Those are scheduled for next year.

A spokesman for Prime Minister Vladimir V. Putin, Dmitri S. Peskov, characterized the breakdown in the agreement as “concerning the companies alone.”

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

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Deadline Looming, BP Tries to Salvage Rosneft Deal

BP is trying to salvage a partnership with Rosneft that was announced in January but quickly hit a legal snag when Russian shareholders in a separate BP partnership filed a legal action to block the Rosneft deal.

BP’s shares 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 agreement with Rosneft, Russia’s state-owned oil giant, called for the companies to invest in each other through a share swap and to jointly explore for offshore oil in the Russian Arctic. BP’s offshore drilling technology was to make possible the first significant Russian oil exploration project in the Arctic Ocean.

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.

A lapse of the midnight deadline without a Rosneft deal would be a major blow to BP’s effort to win back investors’ confidence, 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,” Doug Youngson, an analyst at Arbuthnot Securities in London, said. “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 BP’s partners in TNK-BP sued within days to block the arrangement and demanded to be part of the new business. The Russian partners in TNK-BP rejected an offer from BP in January to pay them in oil assets and cash to remove their objections. They later turned down an offer to buy them out of TNK-BP.

A Stockholm arbitration court that has handled the AAR partners’ case against BP, ruled recently that BP and Rosneft could proceed with the share swap with restrictions including waiving voting rights in each others’ shares. But they would have to cede the Arctic exploration venture to TNK-BP, the court ruled.

Under this arrangement, BP would still retain a financial interest in the Arctic deal but would lose some operational control. But the arbitration ruling also created a new issue: any compromise hinged on Rosneft’s approving the involvement of TNK-BP, whose Russian partners are not necessarily in synch 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.

With the deadline for the deal approaching, some analysts 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. And yet, some analysts said that if the deadline was not met and the deal expired, BP could 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. That agreement requires Rosneft to negotiate exclusively with BP on developing the two exploration blocks. 

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.

Andrew E. Kramer reported from Moscow.

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