June 4, 2012 / 8:09 AM / in 6 years

BP is free to sell Russian TNK-BP stake: source

MOSCOW (Reuters) - BP (BP.L) will press ahead and sell a stake in its Russian venture, a source close to the company said, despite a threat by its billionaire partners to block a deal that could pave the way for the Kremlin to cement its dominance over the country’s vast energy sector.

A British Petroleum (BP) logo is seen at a petrol station in south London April 27, 2010. REUTERS/Toby Melville

BP said on Friday it had received expressions of interest in its one-half stake in TNK-BP TNBP.MM, Russia’s third largest oil producer that analysts estimate is worth $30 billion, and would pursue a sale.

A successful sale of TNK-BP to the state would raise the government-controlled share of Russia’s oil production to more than 50 percent and mark a major victory for the Kremlin’s drive to strengthen its grip on strategic natural resources a matter of weeks after Vladimir Putin returned to the presidency.

It would also sideline the four billionaires who thwarted an earlier tie-up between BP and state company, Rosneft (ROSN.MM).

“We can sell it if we want to,” the BP source told Reuters in response to reports that the AAR consortium which represents the quartet of Russian oligarchs would seek to veto any deal.

Sources familiar with the matter said BP has been approached by state energy holding company Rosneftegaz, which controls a stake of more than 75 percent in Rosneft, Russia’s largest oil company.

Former Deputy Prime Minister Igor Sechin, a Putin ally who has led strategy at Rosneft for the best part of a decade, was recently named chief executive at the state oil firm and sources say has been handed a mandate to build a national oil champion capable of competing on a global scale.

UNDER PRESSURE

The state approach has put AAR - led by banking-to-retail tycoon Mikhail Fridman - under pressure after it took legal action last year to prevent BP from signing a major offshore exploration and $16 billion share-swap deal with Rosneft.

Fridman resigned as chief executive of TNK-BP a week ago, throwing the company deeper into a crisis of corporate governance that has left its board inquorate and blocked the payment of dividends.

Industry and political sources say the oligarch shareholders last year lobbied Dmitry Medvedev, then president and now prime minister, to oust Sechin as chairman of Rosneft.

With Putin back in the Kremlin and Sechin in control of Rosneft in both an executive and advisory capacity, it appears increasingly likely that the state will assume control of TNK-BP - either by buying out BP or the oligarchs.

“The end game is that the state buys (TNK-BP),” said one veteran Moscow-based executive. “The issue is that Fridman overplayed his hand a couple of times.”

Some industry sources say that BP may end up striking a broader partnership with Rosneft along the lines of big offshore exploration deals struck recently by the Russian oil major with ExxonMobil (XOM.N), Eni (ENI.MI) and Statoil (STL.OL).

Sources close to AAR have said, meanwhile, that the consortium would be willing to buy out BP for a consideration of $25 billion.

TENSION

BP paid a total of $8 billion in 2003 for one half of TNK-BP, which has since thrown off $19 billion in dividends and accounts for 29 percent of its hydrocarbons production.

But the partnership has been fraught with tension. BP’s current CEO Bob Dudley was forced to leave Russia in 2008, when he was head of TNK-BP. Arbitration proceedings over the failed deal between BP and Rosneft continue.

The Financial Times newspaper, citing a spokesman for AAR, on Monday reported that the TNK-BP shareholder agreement prevents BP from giving out any confidential information to a third party without its consent.

The FT said such limitations could make it hard for a prospective buyer to complete due diligence on BP’s stake, effectively giving AAR a veto right over any deal and making it harder for BP to exit without the risk of litigation.

AAR Chief Executive Stan Polovets declined to comment.

Sources on both sides have said, however, that it would be possible to bypass provisions in the joint venture’s shareholder agreement which grant each party some influence over a decision by the other partner to exit.

Another source familiar with the terms of the shareholder agreement said the provisions did not amount to a formal right of first refusal clause and the owners were not in a position to block an exit by their partners.

    Additional reporting by Melissa Akin; Editing by Elizabeth Piper

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