DBRS Comments on BP’s Sale of Stake in TNK-BP

DBRS notes today that BP p.l.c. (BP or the Company, rated ‘A’, Stable trend) announced on October 22, 2012, that it has an agreement in place to sell its 50% share in its Russian joint venture (TNK-BP) to OAO Rosneft (Rosneft), a major Russian integrated oil and gas company. In return for its stake in TNK-BP, BP is to receive a mix of cash in the amount of $17.1 billion, as well as shares representing a 12.84% ownership in Rosneft. In addition, BP would then use $4.8 billion in proceeds to purchase a further 5.66% stake in Rosneft from the Russian government, to bring BP’s total holdings in the Russian company to 19.75% (including BP’s existing holding of 1.25%).

Upon completion of the transaction (expected in 2013), BP is expected to account for its investment in Rosneft on an equity basis, and also expects to have two seats on the nine-person board of directors.

A portion of the proceeds from the transaction is expected to be used for share repurchases to offset any dilution to earnings per share as a result of the sale of BP’s interest in TNK-BP, as well as reinvestment. DBRS would expect that remaining proceeds be used to further strengthen BP’s financial and liquidity profiles.

The transaction would bring an end to the somewhat tumultuous relationship BP has had with its joint venture partners in TNK-BP; however, it will also result in BP having less control over its Russian production volumes. In addition, production from Russia will continue to account for a significant portion of BP’s worldwide volumes.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.