By Alexis Flynn
(Updates throughout with BP comment, background.)
LONDON--BP PLC (BP.LN) and its Russian partners, the Alfa Access
Renova Group, confirmed Wednesday they have entered talks that
could result in AAR significantly increasing its shareholding in
their joint venture, TNK-BP (TNBP.RS), a move likely to kick off
complex negotiations over the future of the troubled firm.
In a brief statement, AAR said it would begin talks with BP that
could continue for up to 90 days. BP also confirmed in a statement
that talks had started over the sale of its 50% stake in TNK-BP,
Russia's third-largest oil company.
The talks potentially set up an end game for what has proved to
be a highly profitable, but tempestuous BP adventure in Russia, one
that could yet draw in other major players in the country's
state-dominated energy sector.
"AAR and BP both realize that a fundamental realignment in the
ownership of TNK-BP is necessary in order to allow each of the
shareholders to achieve its strategic objectives and eliminate the
internal contradictions that are preventing further development of
TNK-BP," said AAR Chief Executive Stan Polovets.
BP said last month that it was considering selling its stake in
TNK-BP after receiving expressions of interest from unnamed
prospective buyers. However, the TNK-BP shareholder agreement
requires BP to begin a period of exclusive negotiations with AAR,
offering its Russian partners the opportunity to buy its stake,
before soliciting interest from other interested parties, according
to a person familiar with the pact.
AAR, a group of Soviet-born billionaires that have long been at
odds with their British partners over how the company should be
run, has offered to buy half of BP's 50% stake. BP has consistently
rejected that proposal, saying it would only be prepared to sell
its entire interest in TNK-BP.
The formal start of talks with AAR gives BP the right to start
talking to other parties too, the person said. BP will not be
allowed to conclude a deal with anyone but AAR for 90 days, said
the AAR statement. If BP fails to reach an agreement with AAR after
90 days, it will then be allowed to sell to an outside buyer, the
person said.
Investors initially welcomed BP's decision to pursue a sale, but
doubts have grown in recent weeks about the impact of selling an
asset that accounts for nearly a third of BP's production and has
paid the British company $19 billion in dividends since it was
formed in 2003.
From the outset, BP and its partners have skirmished over
control of and strategy at the 50-50 venture. In 2008, Bob Dudley,
then chief executive of TNK-BP, fled Russia under regulatory
pressure amid a conflict with AAR. He is now BP's CEO.
BP has sought for years to make deals with Russia's state energy
companies, which BP executives thought were the Kremlin's preferred
partners for the British company. But AAR has stymied those
attempts. Last year, AAR successfully sued to block an alliance
between BP and OAO Rosneft (ROSN.RS), the state oil company. Later,
a deal in which BP and Rosneft would have bought out AAR for about
$32 billion in cash and stock fell apart at the last moment.
Bankers and analysts say AAR is positioning itself to engineer a
lucrative exit from TNK-BP, probably with a state company -- like
Rosneft -- coming in to take its place.
However, Mikhail Fridman, the billionaire who leads AAR,
recently told the Wall Street Journal that the government doesn't
want to see a state takeover of TNK-BP and would prefer another
major foreign oil company to step in if AAR and BP can't resolve
their differences.
No other foreign companies have publicly expressed their
interest yet.
Write to Alexis Flynn at alexis.flynn@dowjones.com (Greg White
and Lukas Alpert in Moscow contributed to this report.)
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