Join our community of smart investors

Red October beckons for BP

Rosneft formally enters the running for BP's stake in TNK-BP
July 25, 2012

As anticipated, Rosneft has formally expressed an interest in acquiring BP's 50 per cent stake in TNK-BP, its Russian joint venture with the AAR (Alfa-Access-Renova) consortium, potentially pushing up the exit price but adding political risks.

IC TIP: Buy at 428p

BP is already in talks with the Russian billionaires behind AAR; they have 90 days in which to negotiate a buy-out of the BP stake in good faith, although that contractual provision doesn't preclude BP from talking to others.

Given the shared history of the partners, any deal conducted 'in good faith' would represent a minor miracle in itself. But this unruly union has had undeniable benefits for both parties. TNK-BP's output represents more than a quarter of BP's total global production, and BP has netted around $19bn in inward receipts since the joint venture was set up in 2003.

By most standards the Rosneft approach appears a straightforward affair, but, as always in Russia, there are special interests to consider. Rosneft is 75 per cent owned by the state and is headed by one of President Putin's closest political allies, Igor Sechin. The AAR partners are unlikely to relish a tie-up with Rosneft, as Mr Putin's point-man has a fearsome reputation, and they may eventually come to regret the dissolution of the union with their erstwhile British partners.