BP is to take a near-20% stake in what will become the world’s largest publicly listed oil producer as part of a £16.7billion deal.
Russian state-backed energy firm Rosneft has agreed to buy BP’s 50% stake in its troubled TNK-BP joint venture for £10.7billion in cash and £6billion worth of Rosneft shares.
The deal, subject to state and regulatory approvals, will see BP gain a 19.75% stake in Rosneft, which will become the world’s biggest publicly traded oil company with daily crude output of more than 3million barrels.
BP chairman Carl-Henric Svanberg hailed the move as an important day for BP.
BP will reinvest £2.9billion of the cash received in the deal to buy part of its eventual stake in Rosneft, equal to around 5.66%.
Signing of the definitive agreements is conditional on the Russian government agreeing to the sale of this part of the stake.
BP expects to have two seats on Rosneft’s nine-strong main board as part of the deal.
BP and Rosneft now have an exclusivity period of 90 days to negotiate fully termed sale-and-purchase agreements.
Completion is also subject to certain closing conditions, including governmental, regulatory and anti-trust approvals, which is expected to happen in the first half of next year.
Mr Svanberg added: “Russia is vital to world energy security and will be increasingly significant in years to come.
“Russia has also been an important country for us over the past 20 years. Our involvement has moved with the times. TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia.”
Rosneft and the four Russian billionaires who own the other half of TNK-BP – known as Alfa-Access-Renova (AAR) – have also signed a memorandum of understanding that would see Rosneft acquire their stake at a later date. BP said it supported Rosneft in its plans to acquire additional equity stakes from other shareholders in TNK-BP.
Neil Shah, global head of research at Edison Investment Research, called the deal “game changing” for BP.
He added: “BP will be left with a well of cash which should create a buffer for the costs from Deepwater Horizon (the Gulf of Mexico oilspill rig) and possibly fund future acquisitions.
“We would like to see BP move from retrenchment to expansion, it would demonstrate confidence is returning, it is an oil super-major but only about the fifth biggest in the world and consolidation in the oil sector is far from over.”
TNK-BP is Russia’s third largest oil producer, which employs around 50,000 staff and has assets across Russia and Ukraine.