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BP Navigates Russia Inc On Rosneft Deal

Catherine Belton and Sylvia Pfeifer, Financial Times
Monday, 11 Apr 2011 | 2:07 AM ET

BP will launch a final attempt this week to salvage a proposed alliance with Rosneft, the Russian state oil group, and intends to seek Russian government approval to buy out its billionaire partners in TNK-BP or do so in tandem with Rosneft.

BP sign
Ben Stansall | AFP | Getty Images
BP sign

BP has just four days to secure an agreement with the partners to lift the legal block on its proposed $16 billion share swap with Rosneft which expires on Thursday.

Failure to secure agreement by April 14 will jeopardize the landmark deal, which Bob Dudley, BP chief executive, hoped would turn the page after last year’s Gulf of Mexico oil spill.

The Russian partners are using the deadline “to crystallize a fight”, claimed one person familiar with the situation. “[They have] chosen this to make a stand to put maximum pressure to be bought out.”

“Oil prices are high and there is a concrete window of time to do a deal and the deadline is April 14. If the window goes by it will all fall apart,” the person said.

However, a person close to Alfa-Access-Renova, the Russian partners, said the group was focused only on its arbitration with BP and on managing the company. AAR has repeatedly denied it is interested in selling.

Rosneft said it had not yet received any proposals on a buy-out but added: “If someone proposes something to find an exit before April 14, then there’s always a way out.”

BP declined to comment.

The legal actions taken by the Russian shareholders, led by Mikhail Fridman, have been threatening to jeopardize the pact BP struck with Rosneft for the share swap and an Arctic exploration deal.

AAR’s claims that the pact breaches their shareholder agreement with BP won them a second international arbitration ruling on Friday, extending a block on the share swap past the deadline.

AAR has already rejected an offer from BP of cash and the opportunity for TNK-BP to participate in BP’s international projects in exchange for waiving the deal.

However, a deal could yet be reached if BP receives permission from the Russian government to participate in any buy-out. Russian law forbids foreign entities from owning more than 50 percent in strategic companies.

Another scenario could be that Rosneft buys out AAR entirely.

A TNK-BP board meeting could be held by telephone on Wednesday.

With time running out, uncertainty is mounting over whether the two sides can reach agreement.

The position of Igor Sechin, the Rosneft chairman who backed the BP deal, has weakened amid infighting ahead of presidential elections.

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