Monday, April 18, 2011

BP Trying to Resolve Disputes with Partners in Russia

NYT: BP Gets an Extension From Rosneft to Salvage Their Oil Exploration Deal
WSJ: Delicate Endgame at TNK-BP
BP Gives Rosneft a Month to Resolve Legal Wrangle
WSJ: BP 'Never Made a Constructive' Rosneft Proposal

Disputes between BP and its Russian partner Alfa-Acces-Renova (AAR) may jeopardize a $16 billion deal between BP and Rosneft. AAR, a group comprised of four Soviet-born billionaires, currently holds a 50% share of the TNK-BP joint venture (a partnership with BP). BP hopes to save the deal with Rosneft, a state-controlled Russian oil company, for a $16 billion share exchange and Arctic exploration agreement. AAR, however, has been trying to block the deal, claiming that it would violate the TNK-BP shareholder agreement. AAR successfully won an injunction against the deal at the Stockholm Arbitration Tribunal in London, but the parties are planning to return to arbitration to work on a compromise. Meanwhile, BP and Rosneft agreed this week to extend negotiations on their share exchange until May 16th so that BP can attempt to settle its dispute with AAR.

BP is looking for compromise that would allow the Rosneft deal to proceed even if it means buying out AAR’s share of their joint venture. Rosneft is also eager for the deal with BP because it would have difficulty finding another partner willing to include a share swap in an Arctic exploration deal. Together, BP and Rosneft offered to buy out AAR’s half of the partnership for $27 billion. Robert Dudley, BP’s chief executive stated, “We’ve offered participation in the Arctic, we’ve offered cash, we’ve offered participation in international ventures. But we won’t offer a large amount or significant stake in BP because it’s not in the interest of shareholders.” AAR rejected BP’s offer because it claims its share is worth at least $70 billion.

The breakdown in the TNK-BP partnership hurts both AAR and BP. This turmoil caused BP’s shares to fall .9% this week, and the company faces continued protest from shareholders and the public concerning BP’s lack of transparency during the oil spill in the Gulf of Mexico. This is the second bitter breakdown between BP and AAR in the past three years. In 2008 disputes between the two parties resulted in the forced departure from Russia of Robert Dudley, then chief executive of TNK-BP. With the struggling relationship between the parties, AAR should think seriously about selling its shares and walking away from the joint venture. The fact that BP is involved in arbitration over its deal with Rosneft makes it a less desirable partner for investors. AAR may not be able to find a buyer other than BP’s buyout in the future, and by rejecting the offer, AAR remains in the rocky partnership. These disputes appear more serious than the parties’ 2008 troubles and may jeopardize the profitability and reputation of the joint venture moving forward.

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