Russia’s Rosneft Offers $28 Billion for TNK-BP Stake

Russia’s largest state-controlled oil company, OAO Rosneft, has reportedly offered BP PLC (NYSE: BP) about $28 billion for BP’s share its Russian joint venture TNK-BP. BP’s partner in the venture is a Russian firm, Alpha Access-Renova (AAR). Rosneft’s offer would be a combination of cash and stock according to the Financial Times.

In July, BP began negotiating to sell its stake to AAR, as it was required to do by the terms of the joint venture. Apparently those discussions came to nothing as AAR couldn’t compete with Rosneft’s determination to add BP’s holdings to its reserves.

If the deal with Rosneft is real and if it goes through, BP will have escaped its last big Russian entanglement. And while $28 billion is hardly peanuts, it is a good value for Rosneft, considering TNK-BP’s proved reserves total 9.1 billion barrels. Rosneft would be paying about $6 a barrel, a bargain-basement price for crude that is proved to be in the ground.

BP’s market cap is slightly more than $138 billion and the company’s proved reserves totaled 17.75 billion barrels of oil equivalent at the end of 2011, including the TNK-BP barrels. More than half of BP’s reserves will evaporate if the company sells to Rosneft. That is a big hit to BP’s value, even though the company will have a 10% to 20% stake in Rosneft.

A sale of this size will add to BP’s cash hoard and even push the company way over the top of its planned $38 billion in asset sales. But the price is very high.

BP’s shares are up about 0.4% in premarket trading at $43.70 in a 52-week range of $36.25 to $48.34.

Paul Ausick