TNK-BP to Bid for Rosneft Stake; BP Execs Meet Putin

Mar 23, 2007 (Dow Jones Newswires)

BP PLC's (BP) Russian venture unexpectedly revealed plans to bid for a 9.44% stake in state-owned oil producer OAO Rosneft (ROSN.RS) Friday, just hours before top BP executives including Chief Executive John Browne met with Russian President Vladimir Putin for talks aimed at easing BP's expansion into Russia.

The announcement by BP's 50%-owned TNK-BP Holdings (TNBP.RS) came at a sensitive time for the company, as regulators threaten to strip TNK-BP's Siberian unit of its license to develop a massive natural gas field, for underdevelopment.

Rosneft has been widely seen as the most likely winner of the auction for 9.44% of its own shares, given its close ties to the Kremlin. Analysts said BP appeared to be taking pains to earn the approval of the Kremlin and Rosneft for its actions.

The Rosneft stake now belongs to bankrupt oil company OAO Yukos (YUKO.RS), which was crushed under tens of billions of dollars worth of back-tax claims from Russian officials in what was widely viewed as a politically motivated attack on the company.

Analysts said participation of TNK-BP in the auction could be a diplomatic gesture aimed at providing the controversial sale with a sense of legitimacy. Such a move could curry favor for the company as it seeks to grow in Russia.

"In our view, TNK-BP Holding will be participating in the auction as Rosneft's partner rather than as a real bidder," said analysts at Moscow's MDM Bank, who have a buy rating on Rosneft shares.

Speculation is rife in Moscow that Rosneft or state-run gas giant OAO Gazprom (GSPBEX.RS) could be on the verge of buying out the Russian oligarchs who hold the other half of TNK-BP, and some analysts said the purchase of Rosneft shares by TNK-BP could be a prelude to Rosneft's acquisition of 50% of TNK-BP.

"This seems less likely, but it's entirely possible," said Valery Nesterov, oil and gas analyst at Troika Dialog. "This looks like coordinated action."

TNK-BP said the move was aimed at deepening its cooperation with Rosneft, and brushed aside speculation that it didn't really intend to win the auction.

"We think this will be good for our strategic relations with Rosneft," said TNK-BP spokesman Alexander Shadrin.

In a brief appearance Friday, Putin praised TNK-BP. "This private company has been vigorously developing in Russia, where its reserves, production volumes and revenues have been growing," Putin said, according to Russian newswire Interfax. Browne told Putin during their meeting Friday that the company hoped to expand its operations in Russia.

BP last year supported Rosneft's controversial initial public offering, buying around $1 billion of stock in a sale that many portfolio investors avoided due to concerns about the legality of Rosneft's ownership of its largest production company, Yuganskneftegaz.

Rosneft acquired Yuganskneftegaz from Yukos following a forced auction that Yukos' shareholders called a barefaced asset grab by the state.

The 9.44% Rosneft stake, which has a market value of over $8 billion at current prices, is due to be sold Tuesday. Rosneft said earlier this week that it had arranged two separate loans of a combined $22 billion for that and subsequent auctions of Yukos assets.

Copyright (c) 2007 Dow Jones & Company, Inc.