BP's Had Enough of Russian Roulette

LONDON -- FTSE 100 giant BP  (NYSE: BP  ) has received unsolicited indications of interest in its shareholding of 50-50 Russian joint venture TNK-BP.

At a closing share price on Thursday of 395 pence, I'm surprised it didn't receive indications of interest in the whole company!

When I looked at BP's first-quarter results a month ago, I explained that the TNK-BP joint venture generates more than 25% of production, but the company doesn't have the direct control we shareholders would prefer to see. TNK-BP is owned equally by BP and Alfa Access Renova.

So today's news is unequivocally good news in my opinion. And the market likes it so far: The shares are up almost 3% to 406 pence at the time of writing.

If any deal is struck, it would see the end of what has been both a profitable but troubled partnership, freeing up a dollop of cash to help meet the continuing costs of the 2010 Gulf of Mexico oil spill, as well as the potential fines still to be settled with the U.S. and state governments.

A match made in hell
More importantly, it removes the uncertainty that the market hates. But there's more to the potential sale than meets the eye. The truth is that the marriage between the oil giant and its Russian-billionaire-owned partner was one made in hell. On Monday, one of these billionaires, Mikhail Fridman, resigned as CEO of TNK-BP, citing a breakdown in relations with BP.

BP has said there is no guarantee of a sale, and there have been suggestions that it's a tactical move that could see BP buying out AAR's stake instead.

Either option would be good news for us shareholders. The partnership has yielded $19 billion in dividends for BP since its inception in 2003, and it typically accounts for around 10% of profits. But the market has never been comfortable with it, and it has been a drag on BP's valuation. The partners disagreed over the issue of an offshore exploration and $16 billion share-swap deal with Russian-government-majority-owned Rosneft last year. AAR won a court order to block the agreement, then refused a $32 billion buyout offer from Rosneft and BP for its 50% interest in TNK-BP.

The big questions are how much BP will receive for its 50% stake and what it will then do with the cash. The answer to the second question lies in the eventual outcome of the Gulf litigation. A sale should raise about $30 billion for BP.

Any developments both to move away from the troubled partnership and to put the Gulf spill to bed have to be welcomed, in my opinion. These are the big strategic issues, and steps to address them are good news.

Oils, pharmaceuticals, banks, telecoms -- just where should you invest today? "Top Sectors for 2012" is the Motley Fool's latest guide to help Britain invest. Better. The report is free.

Further investment opportunities:

David owns shares in BP. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 01, 2012, at 11:12 AM, Tsharp1947 wrote:

    BP has been run by morons for years now. They continue to make deals with the devil and lose every time! It is long past time for a complete overhaul of upper management!

  • Report this Comment On June 01, 2012, at 11:34 AM, pugwee wrote:

    BP should never had made a deal with TNK. I would have been happy if they dumped it and took a loss. But if they can dump it and break even that would be even better. Regardless if BP takes a loss, breaks even, or makes a profit they need to get away from TNK. As far away as possible.

Add your comment.

DocumentId: 1900578, ~/Articles/ArticleHandler.aspx, 7/23/2014 11:04:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement