BP Shares Shift Higher on Potential Sale of Interest in Russian Joint Venture
 | |
| Type | Public limited company |
|---|---|
| Industry | Oil and Gas Producers |
| Trades as | LSE:BP. |
| Founded | 1908 [1] |
| Website | www.bp.com |
ADVFN News - Lou Gutheil
BP's share price hit 412.90p this morning, the stock’s best performance level in 3 weeks. It was up 4.3% and 18.00p early on, [2] but seemed to be moderating at mid-morning, drifting back to 405.55p. This was still 10.65p above yesterday’s close. [3] The early jump in share price came in response to a press release issued at 7:00 am. [4]
The Press Release
- The first line of the release pretty much said it all: "BP announced today that it has received unsolicited indications of interest regarding the potential acquisition of its shareholding in TNK-BP." [4] TNK-BP is the third largest oil production company in Russia, which itself is the number one producer in the world. [5]
- The relationship between BP and its 50% partner, Alfa Access Renova (AAR), [2] a consortium of three Russian billionaires, has been strained for several years. [6] Although there were less publicised disputes from the inception of the partnership in 2003, a successful attempt by AAR to block a joint venture between BP and another Russian company raised the disagreements to a new level. The Russians said that such a deal should be made through TNK-BP, and not BP alone. [7] The tension between the partners had stimulated BP to offer to buy out AAR for $34 billion in 2011. Almost simultaneously, AAR said that it would be interested in acquiring BP’s share of the business.
- BP’s announcement today follows the latest turmoil at TNK-BP when CEO Mikhail Fridman abruptly announced his resignation. [8] That move was apparently a gambit to demonstrate that there is no love lost between the partners. The Guardian quoted "a source close to Firdman" as saying that "The Russians have decided they want to renegotiate their stakes and change the structure of the partnership." He indicated that what AAR wants is "Either BP leaves completely or reduces its stake to become a junior partner." [9] In reality, the Russian government has been adverse to foreign investment since the formation of TNK-BP in 2003, preferring to have large oil-fields under state control. [5]
- The potential consequences of the sale of BP’s portion of the company are interesting. Whilst the most obvious downside is that it would lose 30% of its total oil and gas production and about $3.7 billion per year in dividends, the upside is that BP would have an immediate influx of up to $30 billion which could "help the ongoing cost of cleaning up the 2010 Gulf of Mexico oil spill" and increase the ability to invest in other more profitable and less contentious ventures. [5]
Observations
BP has not revealed the names of the parties who have presented the offers. In its announcement the company also said that “there can be no guarantee that any transaction will take place.” [4]
Company Spotlight
BP is one of the world’s largest oil and gas companies operating in countries around the globe providing petrol and petrochemical products, alternative energy, shipping, and a host of other related businesses. [10]
