The transaction, which was first announced in February, creates a new joint venture company, TNK-BP, with BP and AAR each holding 50 per cent stakes. When the transaction is completed, BP will become the world's second largest private sector producer of oil and gas, and TNK-BP itself will be the tenth largest.
Closing adjustments reflecting increased debt levels in TNK-BP, partly due to TNK's financing of the Slavneft acquisition, mean BP now expects to pay around $2.4bn for its equity interest in TNK-BP, less than the $3 billion anticipated at the time of the announcement in February. In addition there will be three annual tranches of $1.25 billion, payable in BP ordinary shares valued at market prices prior to each annual payment.
BP's Chief Executive Lord Browne expressed satisfaction at the pace of progress made since February and noted the increase in production from the assets of the new joint venture company, which is up so far this year by around 10 percent year on year, as well as in the level of exports. 'This is one important element in the process of strategic renewal within BP. On the basis of the progress made to date I believe we can complete the transaction over the summer and then begin to deliver the tremendous value potential which we see.' More than 70 members of the management team for the new joint venture company have already been appointed.
The agreement signed today finalizes all the commercial arrangements for the formation of the TNK-BP joint venture company, which will be effective from January 1, 2003, subject to the approval of regulatory authorities including those at the European Union, in Ukraine and in Russia.
Discussions continue between BP and AAR on whether the interest, which TNK has taken in the Russian company Slavneft, should be included in TNK-BP. Any such inclusion will result in additional consideration being paid to AAR.
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