British Petroleum Plc on Oct. 22 sold its 50 percent stake in TNK-BP to Rosneft, Russia’s biggest oil company. This marks the end of BP’s adventure into Russian oil exploration and production via TNK-BP.
The state-owned oil company offered BP $17 billion in cash and a 13 percent stake in Rosneft. For BP, the deal means it gets to keep a foot in the door of the Russian energy market backed by the Kremlin.
Its previous involvement with TNK-BP, which wasn’t backed by the state, brought some profits, but also lots of troubles. The AAR (Alfa Access Renova) group of Russian oligarchs controlling the other 50 percent of TNK-BP had major disagreements with BP over the company’s strategy.
The conflict escalated in 2008 when Bob Dudley, who then was the CEO of TNK-BP, had to flee Moscow after what he calls a “campaign of harassment” from AAR chiefs. AAR also agreed to dispose of their stake, valuing the deal at a total of $55 billion. The oligarchs have been offered $27 billion for their stake in TNK-BP.
Partnering with state-backed Rosneft, instead of Russian oligarchs, likely means BP will capture a bigger share of the Russian energy market’s profits. It could also take part in Arctic oil exploration projects, which were previously blocked by the AAR group. BP hopes to get two seats on the board of directors of Rosneft and become the second largest voice in the company after the Russian government, which has a majority stake.
In terms of pure profit, the deal might not be as lucrative for Rosneft as it is for BP, but it will increase its political influence at home and abroad.
If the deal passes antitrust hurdles, Rosneft will become the biggest oil producer in the world. It will surpass Exxon Mobil, producing 4.5 million barrels of oil per day.
However, bigger doesn’t always mean better. Along with its huge size, Rosneft will dominate the Russian energy market and could choke off any competition and developments in the much smaller private energy sector.
In addition, many analysts have doubts that Rosneft has enough capital to purchase a 100 percent stake in TNK-BP. There are rumors about possible financing from the Russian government, should funds prove to be insufficient.
Possible negative effects for Russian businesses include that the deal will give even more power and control to President Putin’s government, something that he denied during the elections. At that time, Putin stated that Russia needs a much more robust private sector with less state intervention and more economic freedom.
Igor Sechin, the current CEO of Rosneft and previous member of the Russian Cabinet, orchestrated Yukos’s downfall and the imprisonment of its CEO, Mikhail Khodorkovsky—at one time the wealthiest man in Russia and No. 16 on the Forbes’ billionaires list. Yukos was Russia’s biggest oil company before being taken over by the state.
After the downfall of Yukos, Rosneft took control of its assets, thereby becoming Russia’s biggest oil company.
Sechin is considered a close ally of Putin and an unofficial FSB (Russian secret service) representative in the Russian energy sector.
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