Russian state oil company Rosneft (ROSN.MM) closed its deal to buy TNK-BP (TNBP.MM) from UK-based BP (BP.L) and four tycoons on Thursday, releasing $40 billion cash to the sellers and becoming a bigger oil producer than Exxon Mobil (XOM.N).
The $55 billion deal, which also gives BP a near 20 percent stake in Rosneft, was announced last year after months of on-off negotiations. It is the biggest in Russia's corporate history.
It tightens the government's grip on the energy sector and is a victory for Rosneft chief Igor Sechin, a close confidant of Russian President Vladimir Putin, creating a business with annual production of about 4.6 million barrels of oil equivalent.
The deal gives Rosneft an expert international shareholder, extra oil output, and income with which to explore Russia's vast reserves and to replace ageing and depleting fields.
BP, selling one half of the business, gets some hard cash in the bank that reduces its dependence on an uncertain future in the country. It has promised some of the $12.3 billion to shareholders, and can set the rest against its multibillion dollar Gulf of Mexico oil spill liabilities.
Cash also goes to the private businessmen who owned the rest of TNK-BP to fund their international ambitions.
A BP spokesman confirmed that the company's cash is in the bank and outside Russia, where it has made huge profits in its 20-year history but where increasing state involvement has hampered its business plans over the past decade.
TNK-BP was created in 2003 by a merger of BP's Russian operations and those of the Alfa-Access-Renova (AAR) consortium of four Soviet-born billionaires, some of whom will stay in the oil industry by setting up international investment business.
The deal has brought the state share in Russia's oil sector, the world's largest by output, to more than 50 percent. It has drawn criticism from some analysts and managers of non-state enterprises, who said it would hinder competition and production growth.
The acquisition, slated to close in the first half of this year, closed three months ahead of deadline, confirming an exclusive Reuters story of February 22.
"This is a historic day for BP in Russia," BP Chief Executive Robert Dudley said in a statement. "BP has invested in Russia for more than 20 years and for a decade we have been Russia's largest foreign investor through our involvement with TNK-BP."
CHEAP CHINESE CASH
To acquire TNK-BP, which pumps oil at the rate of around 1.5 million barrels per day, Rosneft had to borrow up to $40 billion, mostly from Western banks. It has managed to cover its most immediate needs by lining up a syndicated loan as well as a $10 billion financing from traders Vitol and Glencore (GLEN.L).
According to industry sources, Rosneft has been in talks with China to secure cheaper loans in exchange for boosting oil supply to the world's top energy consumer.
Rosneft paid $27.73 billion cash to AAR for its half of Russia's third-largest crude producer.
The deal with BP nets the British company $12.3 billion of cash plus an 18.5 percent Rosneft stake that lifts its holding in the state firm to 19.75 percent.
BP will have two seats on the Rosneft board, including one offered to Dudley, who served as chief executive of TNK-BP until 2008.
The AAR part of the deal will share the cash pot between Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, all of whom emerged as tycoons after the Russian privatizations of the 1990s.
Khan, who effectively heads TNK-BP and is Fridman's partner in the Alfa Group consortium, sought advice and broached potential partnerships.
"Alfa Group is currently setting up a major, new international investment business which draws on the group's significant expertise in oil and gas and telecoms, looking for long-term, strategic investment opportunities in Russia, North and South America, Asia and Africa," Stan Polovets, the CEO of AAR, told Reuters.
He added that the new company will receive a significant part of the proceeds from the sale of TNK-BP, of which Alfa Group's share is close to $14 billion.
Sources have told Reuters that mining tycoon Vekselberg of the Renova Group and Blavatnik of Access Industries, are likely to bow out and focus on other ventures and charity work.