Deals Could Make Russia's Rosneft an Oil Giant

Brian Hicks

Written By Brian Hicks

Posted October 22, 2012

Something very crucial is going on in Russia right now. Last Friday, BP’s (LON: BP) Robert Dudley and Rosneft (MCX: ROSN) chairman Igor Sechin met to finalize an arrangement that will see Rosneft buy BP’s 50 percent share of the Russian oil company.

The deal is rumored to be worth around $25 billion. BP will receive $15 to $20 billion in cash, along with a 10-20 percent stake in Rosneft, Forbes reports.

Russian officials announced just last Wednesday that Rosneft would also be buying out the 50 percent of TNK-BP (PINK: TNKBF) held by AAR for $28 billion, though it’s not clear if that deal is still moving forward.

From Forbes:

Whether Rosneft ends up with half or all of TNK-BP, it will be a tremendous victory for Kremlin-controlled Rosneft and especially the close cadre of Sechin and Putin who have sought to undo the privatization of Russian oil assets that occurred after the fall of the Soviet Union.

With the BP deal, Rosneft gets to add BP’s share of TNK-BP to its present rate of 2.6 million barrels of oil equivalent per day, allowing Rosneft to join Exxon (NYSE: XOM) and PetroChina (NYSE: PTR) as one of the world’s oil giants.

If both parts of the deal go through, Rosneft will become the world’s biggest oil and gas company, producing almost 4.6 million boepd—or almost the same as the entire country of Iran, Forbes reports.

BP, of course, has had a unsteady relationship with its TNK partners, and its offices in Moscow have come under repeated raids by Russian authorities.

Regardless, the partnership provided more than 30 percent of the company’s consolidated production volumes and almost a quarter of BP’s overall oil and gas reserves. Returns of BP’s initial investment have doubled to $18 billion.

What’s more, BP was already planning to ditch assets worth roughly $32 billion since 2010’s Macondo incident in the Gulf of Mexico. Despite BP shares trading around 30 percent below what they used to command prior to Macondo, losing these assets (and gaining cash) might allow BP to work toward a firmer long-term position.

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