BP Gets Lucky, May Have Buyer for Russian Joint Venture

In a brief press release this morning, BP plc (NYSE: BP) has said that the company has “received unsolicited indications of interest regarding the potential acquisition of its shareholding in TNK-BP.” TNK-BP is a 50-50 joint venture between BP and Russian company Alfa Access Renova that was formed in 2003.

BP said it has notified Alfa Access Renova of BP’s “intention to pursue a potential sale.” The dry language very likely hides BP’s joy at a possible sale. The Financial Times said the sale could fetch up to $30 billion and that one of Russia’s state-backed energy companies is the potential buyer. That would be either Rosneft, the state oil company, or Gazprom, the state natural gas giant.

TNK-BP’s history has been checkered. Although it has produced solid returns for BP, in 2007 the company lost its stake in the huge Kovykta gas field over a production dispute. The Russian government said TNK-BP was not producing as much gas as the license called for; TNK-BP answered that it had no market for the gas. The head of the company, now the CEO of BP, was basically run out of the country.

Gazprom eventually got TNK-BP’s 63% stake in Kovykta for about $773 million at a bankruptcy auction. The field is estimated to hold 2 trillion cubic meters (more than 70 trillion cubic feet) of natural gas. At $1/cubic foot, BP’s share would have been 31.5%, or $22 trillion over the life of the field. Gazprom got a pretty sweet deal.

BP has received about $19 billion in dividends from TNK-BP since 2003, and the joint venture accounts for 29% of BP’s production and 27% of its proved reserves. TNK-BP has been a headache for BP, but not a big enough headache for the company to be willing to give it away.

Unless, of course, it is forced to, as it was essentially forced to give up its stake in Kovykta. And the idea that Gazprom or Rosneft will pay anywhere close to $30 billion for BP’s stake in TNK-BP is probably sheer fantasy.

BP’s shares are up 2.7% in the pre-market this morning, at $37.45 in a 52-week range of $33.62-$48.34.

Paul Ausick