Published November 13, 2012
LONDON/MOSCOW – BP moved towards closer ties with Russia's Rosneft as its existing partners in the oil-rich country dropped opposition to an alliance with the state oil major in exchange for what sources said was a $325 million payoff.
BP and AAR, the holding company of a group of Soviet-born businessmen and co-owner of the TNK-BP venture being sold to Rosneft, said they had agreed to end the legal battles that had blighted their decade-old partnership.
Both sides last month decided that divorce was the best option, agreeing separately to sell their TNK-BP stakes to Rosneft in a $55 billion takeover.
The deals, which point to increasing state control of Russia's energy assets under President Vladimir Putin, will make Rosneft the dominant producer in the world's No.2 oil exporter and give BP a 19.75 percent Rosneft stake.
The British company will now be free to revive efforts to forge an offshore partnership with the Russian national oil champion after a failed attempt last year landed in the courts.
"Today's agreement allows both AAR and BP to move forward and focus on the future," said David Peattie, head of BP Russia.
$325 MILLION PAYMENT
"BP will be able to concentrate on the sale of our interest in TNK-BP to Rosneft and on working more closely with them as we develop the next stage of BP's long involvement in Russia."
AAR, which represents tycoons Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, had won an injunction blocking the deal, which was abandoned after an arbitration panel found it violated TNK-BP's shareholder agreement.
The tycoons then launched a second round of arbitration to determine whether BP had made itself liable to damages through its agreement in January last year to exchange equity stakes and explore for oil with Rosneft under Russia's Arctic waters.
Sources familiar with the matter said that the two sides agreed to settle all their disputes, including arbitration, before a final ruling by a London-based tribunal. The settlement included a $325 million payment by BP to AAR, the sources said.
That is significantly less than the $5 billion to $10 billion that TNK-BP might have sought in damages had arbitration found in favour of AAR, according to comments in May by sources close to the shareholder group.
AAR Chief Executive Stan Polovets nonetheless declared himself satisfied with the settlement, describing it in a statement as a "win-win" for both sides.
"The settlement enables BP and AAR to focus on issues that are most important at this stage - closing our respective transactions with Rosneft and ensuring that TNK-BP continues to operate at world-class levels during the transition period that lies ahead," Polovets said.
Both sides declined on-the-record comment on the terms of the settlement.
Until the settlement, BP had been unable to discuss any other kinds of co-operation because of the legal wrangle in London.
Now it will be able to discuss the secondment of BP engineers, exploration projects and other co-operation deals with its new partner, including the potential revival of plans for joint exploration in the Russian Arctic.
"BP is not taking an equity position in Rosneft as a portfolio investor - they are looking at a future relationship through which they can grow production and reserves in Russia," said Chris Weafer, chief strategist at Sberbank CIB.
"From Rosneft's perspective, they see the opportunity down the road of expanding globally together with BP."
Since the collapse of last year's deal, Rosneft has signed an offshore exploration deal with U.S. oil company ExxonMobil , covering the three blocks in the Arctic's Kara Sea that had been earmarked for BP.
Rosneft, headed by powerful Putin ally Igor Sechin, has also partnered Italy's Eni and Norway's Statoil to search for oil on Russia's continental shelf.