BP today announced that it has signed heads of terms to sell its 50 per cent share in TNK-BP to Rosneft, the major Russian integrated oil and gas company. Under the heads of terms Rosneft has agreed in principle to buy BP’s share in TNK-BP.
The proposed transaction consists of two tranches:
(i) BP would sell its 50 per cent shareholding in TNK-BP to Rosneft for $17.1 billion in cash and Rosneft shares representing a 12.84 per cent stake in Rosneft;
(ii) BP intends to use $4.8 billion of the cash consideration to acquire a further 5.66 per cent stake in Rosneft from the Russian government. BP would acquire the Rosneft shares from the Russian Government at a price of $8 per share (representing a premium of 12 per cent to the Rosneft share closing price on the bid date: 18 October 2012).
Signing of the definitive agreements is conditional on the Russian government agreeing to the sale of the 5.66 per cent stake in Rosneft and it is intended that the TNK-BP sale and this further investment in Rosneft would complete on the same day. Therefore, on completion of the proposed transaction, BP would acquire a total 18.5 per cent stake in Rosneft and net $12.3 billion in cash. This would result in BP holding 19.75 per cent of Rosneft stock, when aggregated with BP’s 1.25 per cent current holding in Rosneft. At this level of ownership, BP expects to be able to account for its share of Rosneft’s earnings, production and reserves on an equity basis. In addition BP expects to have two seats on Rosneft’s nine person main board.
In accordance with the heads of terms, BP and Rosneft have an exclusivity period of 90 days to negotiate fully-termed sale and purchase agreements. After signing definitive agreements, completion would be subject to certain customary closing conditions, including governmental, regulatory and anti-trust approvals, and is currently anticipated to occur during the first half of 2013. In addition, BP will agree not to dispose of any of the Rosneft shares acquired in the transaction for at least 360 days following the completion of the transaction.
BP's chairman Carl-Henric Svanberg said: "This is an important day for BP. Russia is vital to world energy security and will be increasingly significant in years to come. Russia has also been an important country for us over the past 20 years. Our involvement has moved with the times. TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia.
"Rosneft is set to be a major player in the global oil industry. This material holding in Rosneft will, we believe, give BP solid returns. We consider that this is a deal which will deliver both cash and long term value for BP and its shareholders. It provides us with a sustainable stake in Russia’s energy future and is consistent with our Group strategy.
"Over the coming months we will work hard to complete the transaction and we look forward to the next step of deepening our already strong relationship with Russia.”
BP's group chief executive Bob Dudley said: "This investment builds on BP’s track record of value creation in Russia. It is consistent with our strategy of deepening our positions in the world’s most prolific oil and gas regions.
"BP intends to be a long term investor in Rosneft – an investment which I believe will deliver value for our shareholders over the next decade and beyond.
"Rosneft is a company working to become a global leader in the sector. It is developing its substantial asset base with new technologies and improving its management processes and corporate governance. As a major investor BP looks forward to being able to contribute to Rosneft's success and add value through our participation on the Board. In this regard BP is supportive of Rosneft's intention to pursue further equity in TNK-BP in due course."
BP intends to retain the shares resulting from the proposed transaction, and will evaluate how the cash proceeds will be utilised. At minimum BP's intention is to offset any dilution to earnings per share as a result of the sale of its interest in TNK-BP as well as continue with its progressive dividend policy.
BP supports Rosneft in its plans to acquire additional equity stakes from other shareholders in TNK-BP.
This proposed transaction would constitute a Class 2 transaction under UK Listing Rules.
Morgan Stanley & Co. Ltd. is acting as principal financial advisor to BP on the proposed transaction. UBS Investment Bank is acting as financial advisor and corporate broker to BP. Goldman Sachs International, Lambert Energy Advisory Ltd. and Renaissance Capital have also each acted as financial advisors. Credit Suisse Securities (Europe) Ltd. has provided a fairness opinion to BP's Board on the proposed transaction. Linklaters LLP are acting as principal legal advisors on the proposed transaction.
BP press office, +44 (0)20 7496 4076, firstname.lastname@example.org
Cautionary note to US investors - Certain estimates of Rosneft’s reserves included in this announcement are not calculated in accordance with SEC guidelines.
This release contains certain forward-looking statements, including statements regarding the expected timing of the transaction described, the expected terms of and timing of the execution of definitive agreements, expectations regarding the accounting treatment of BP's expected share of Rosneft's earnings, production and reserves, prospects for BP’s level of representation on Rosneft's board of directors, Rosneft's prospects in the Russian and global markets, expectations regarding the returns on BP's anticipated holding in Rosneft, including expected cash returns and the expected long-term value of such holding, BP's intentions to contribute to Rosneft’s success, BP's intentions to retain Rosneft shares received in the transaction and to be a long-term investor in Rosneft, BP's intentions to offset any dilution to earnings per share as a result of the transaction, expectations regarding BP's future dividend policy and other statements which are generally, but not always, identified by the use of words such as 'want', 'intended to', 'expected to', and similar expressions. Forward-looking statements involve risks and uncertainties because they depend on circumstances that will or may occur in the future.
Actual results may differ materially from those expressed in such statements, depending on a variety of factors, including the ability of the parties to the transaction to negotiate satisfactory definitive agreements and the terms thereof, the actions of regulators and the timing of the receipt of governmental and regulatory approvals, the availability of other attractive investment opportunities, the timing of bringing new fields onstream, future levels of industry product supply, demand and pricing, OPEC quota restrictions, operational problems, general economic conditions, political stability and economic growth in relevant areas of the world, changes in laws and governmental regulations, regulatory or legal actions including the types of enforcement action pursued and the nature of remedies sought, exchange rate fluctuations, development and use of new technology, the success or otherwise of partnering, the actions of competitors, trading partners, creditors, rating agencies and others, natural disasters and adverse weather conditions, changes in public expectations and other changes to business conditions, wars and acts of terrorism or sabotage, and other factors discussed in the "Cautionary Statement" in BP's Annual Report and Form 20-F 2011 (SEC File No. 1-06262) as filed with the United States Securities and Exchange Commission.