BP’s efforts to buy out its Russian billionaire partners in TNK-BP were foundering on Wednesday night, ahead of a deadline to complete the UK energy group’s proposed $16 billion share swap with Rosneft.
According to people close to the discussions, BP and Rosneft, the state-controlled oil group, had decided to end talks with Alfa-Access-Renova, the Russian partners’ vehicle.
They said the billionaires had made “unrealistic” demands for a buy-out of their 50 percent stake in TNK-BP, BP’s existing Russian oil venture.
“It looks like there will be no progress and both Rosneft and BP have essentially stopped discussions with AAR,” one person said.
AAR demanded that TNK-BP be valued at more than $70 billion before agreeing to a buy-out of its stake, and also asked for “significant” stakes in BP and Rosneft of about 10 percent.
However, a person close to AAR rejected that view. “It is up to BP to make a sensible proposal to get out of the mess it has created,” the person said. “One has not been forth-coming.”
BP offered AAR $27 billion for its 50 percent stake in TNK-BP. But AAR rejected the proposal, saying it did not want to sell and retained a long-term commitment to TNK-BP.
“AAR’s position has always been clear,” Stan Polovets, chief executive of AAR, said.
“AAR wanted the Rosneft deal turned over to TNK-BP, not some selected parts...AAR is a long-term strategic investor in TNK-BP and has no plans to exit.”
BP and Rosneft declined to comment.
The deal’s failure would be a setback for Bob Dudley, BP chief executive, who championed the alliance as a source of growth.
Mr Dudley will be grilled over his Russia strategy at BP’s annual meeting on Thursday in London – his first as chief executive.
BP on Wednesday night formally asked Rosneft for a two-week extension to their alliance, potentially throwing the dispute with AAR back into arbitration.
While other people involved in the talks stressed that all options were still open and said a deal might still be possible, leading UK investors in BP expressed frustration at the turn of events and concern at the group’s long-term strategy.
“There is an element that the board rode us up to the top of a hill and then tried to ride us back down again,” said Robert Talbut of Royal London Asset Management.
“If the Rosneft deal does not happen, the company and Bob Dudley will have to re-engage with shareholders on the overall shape and growth of the business. It will need to re-establish confidence.”
“The whole thing is a shambles,” added another UK shareholder. “It is incredibly disappointing.”
BP has been locked in arbitration with its Russian partners in TNK-BP ever since it announced a strategic pact with Rosneft in January.
The Russians have claimed the Rosneft deal could be detrimental to TNK-BP’s prospects and was in breach of their shareholder agreement with BP, which stipulates both shareholders should pursue new ventures in Russia exclusively through TNK-BP.
BP has repeatedly denied it is in breach of the agreement.
Last Friday, AAR won a second international arbitration decision extending a block on the $16 billion share swap past an April 14 deadline, while an earlier ruling blocked the Arctic exploration deal indefinitely.
People close to TNK-BP, led by chief executive Mikhail Fridman, said this week that management was preparing to file suit against BP for up to $10 billion for breaching the shareholder agreement, and against BP-nominated directors on the TNK-BP board for failing to observe their fiduciary duties.