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Rosneft to become world leader in terms of hydrocarbon reserves production

October 23, 2012, 16:29 UTC+3 Alexandrova Lyudmila

MOSCOW, October 23 (Itar-Tass) — The Russian state-run oil company Rosneft is going to take over the private oil producer TNK-BP by buying out 50 percent of its shares from Britain’s BP and another 50 percent from the Russian shareholders – the AAR consortium. The TNK-BP’s takeover by the state is the net effect of a five-year-long conflict among the company’s shareholders.

This “deal of the century”, as local mass media have dubbed the transaction, will make Rosneft the world’s leader in terms of output and hydrocarbon reserves.

For its status of the world’s largest company Rosneft will pay 55 billion dollars, including 45 billion dollars in cash. The British company will sell its 50-percent stake in the TNK-BP for 17.1 billion dollars and 12.84 percent of Rosneft shares. The AAR consortium (Alfa Group, Access, Renova) will get 28 billion dollars.

The deal with the BP will be performed in two stages. For 50 percent of the TNK-BP the British company will get 17.1 billion dollars and 12.84 percent of Rosneft treasury shares. Then the BP will buy out another 600 million shares of Rosneft (5.66 percent) from the state concern Rosneftegaz for 4.8 billion dollars. After that the BP’s stake in Rosneft will grow from the current 1.25 percent to 19.75 percent. Also it will have 12.3 billion dollars in cash from the deal. The British company will become the second largest shareholder of Rosneft after the Russian government and get two seats on a nine-member board of directors.

“Rosneft has confirmed that it is going to buy out the remaining 50 percent of the TNK-BP from its Russian shareholders – the AAR consortium - for 28 billion dollars on the condition of meeting a number of terms. “We welcome this agreement on the sale of our stake in the TNK-BP to Rosneft,” said AAR head Stan Polovets. Kommersant quotes him as saying this transaction will enable the consortium to sell its investment in the TNK-BP at a fair price.”

When the deal is finalized, the share of the state in Rosneft will be about 69 percent.

Rosneft chief Igor Sechin, who met with President Vladimir Putin on Monday, said that by and large the transaction would require 61 billion dollars, Rosneftegaz shares included.

Putin said the deal was a good signal to the Russian and international markets. “It is necessary not only for the energy sector of Russia, but for the entire Russian economy,” Putin said.

As a result, Rosneft will become the world’s leader in terms of production and hydrocarbon reserves. After coming into possession of the TNK-BP the company will be producing 200 million tonnes of oil inside Russia. The proven reserves will reach 38.3 billion barrels of equivalent fuel, and the extraction of liquid hydrocarbons will go up to 4.1 billion barrels a day.

As Sechin told Putin back last June, Rosneft was going to achieve global leadership in oil production at the expense of new fields – both off-shore and inland ones. For developing hard-to-access inland fields, let alone offshore ones Rosneft needs a partner having the technology and know-how. The TNK-BP will be precisely that sort of partner. It will meet both requirements – make Rosneft a global leader and serve as an advanced technological partner.

Experts say that at first sight the deal will benefit all. The AAR consortium and the BP will sell their stakes at a good premium. Analysts estimate it at 30 percent of the market value. In exchange the BP will get what it has sought for so long – an opportunity to operate in Russia offshore jointly with Rosneft. The shareholder agreement with the AAR left no room for that.

Others believe that for the BP the transaction looks less promising. Last year the British company received 3.7 billion dollars in dividends from the TNK-BP. The 19.75-percent share package of Rosneft would yield a tiny 508.4 million dollars (at 7.53 rubles per share – the size of dividends in 2011).

Oil and gas industry analysts believe that Russia has negotiated a good bargain. The acquisition of the TNK-BP will put Rosneft next to such energy giants as Exxon Mobil and Chevron. Also, it will considerably increase oil production.

“The takeover of the TNK-BP may push the annual production to above 205 million tonnes, and revenues, to 180 billion dollars,” Narek Avakian, an analyst at the financial company Aforex, told the Argumenty I Fakty weekly. Besides, joint Arctic and off-shore projects may increase oil production still further.

Some say, though, that in Russia the creation of giant oil companies is less effective than support for smaller oil companies interested in the development of minor fields.

“Megalomania is not the best option for the Russian oil industry,” Mikhail Krutikhin, of Rus-Energy, told the daily Izvestia. Apart from offshore projects, to be implemented in a distant future, Russia has no major oil fields left. As for Russia’s numerous small fields, the emerging giants will not bother to develop them. In his opinion, to support oil production at the current level the Russian government should not create giants, but focus on support for small oil companies, prepared to develop minor deposits.