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.
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