The chief executive of Rosneft will on Thursday finalise a deal with BP that will turn the Russian national champion into the world's largest publicly traded crude oil producer.
Igor Sechin, who flew in to London from Moscow on Tuesday, is looking to acquire BP's 50 percent stake in its troubled Russian joint venture TNK-BP in a cash-and-shares deal worth around $28 billion, according to a person familiar with the matter. It would be $15 billion-$20 billion in cash plus a stake of between 10 and 20 percent in Rosneft, the person said.
BP, Rosneft nd AAR, BP's oligarch partners in TNK-BP, declined to comment.
The transaction will allow BP to extricate itself from a joint venture that has come to symbolize both the risks and rewards of investing in oil-rich emerging markets. BP, which invested $8 billion in TNK-BP when it was created in 2003, has earned $19 billion in dividends from the venture. But a series of bitter disputes with its partners, a group of oligarchs known as Alfa-Access-Renova, or AAR, came to overshadow the company's success.
The deal will transform Rosneft, catapulting it into the premier league of international majors. An expanded Rosneft will produce about 3.15m barrels a day of oil compared to ExxonMobil's 2.3m b/d.
Transferring a large chunk of Russia's oil production from private hands into state control, the deal will also signal the most significant realignment of the Russian oil industry since the breakup between 2004 and 2007 of Yukos, once the country's biggest private oil company.
BP is expected to receive a formal offer for its TNK-BP stake from Rosneft by a deadline of 9am on Thursday. Mr Sechin, a close ally of Russia's president Vladimir Putin and previously Russia's senior energy official, will then meet BP's chief executive Bob Dudley at the company's central London headquarters to put the finishing touches to the deal. BP's board is to meet on Friday to consider the company's options.
A deal would have a particular resonance for Mr Dudley. As TNK-BP's then chief executive, he had to leave Russia in the summer of 2008 as tensions between BP and the oligarchs came to a head.
Rosneft is also interested in buying out BP's oligarch partners. AAR, which is reluctant to be stuck in a partnership with the state-run oil group, signed a memorandum of understanding with Rosneft on Tuesday to sell it its own 50 per cent stake in TNK-BP for $28 billion.
However, analysts said it was unlikely Rosneft could afford to buy all of TNK-BP. "For a company that already has fairly high debt levels, it is already stretched," said Valery Nesterov, energy analyst at the investment arm of Sberbank, the state investment bank.
But even if it only buys half of TNK-BP, Rosneft will still produce more crude oil than Exxon Mobil or Royal Dutch Shell.