May 17, 2011 5:34 pm

Sunday summit to secure TNK-BP buy-out

BP’s London headquarters played host to three of Russia’s most powerful businessmen on Sunday. Mikhail Fridman, Viktor Vekselberg and Leonid Blavatnik met at 1 St James’s Square with a small group of BP executives and advisers, including Bob Dudley, the UK oil group’s chief executive and Carl-Henric Svanberg, BP’s chairman.

On the agenda was the buy-out of the oligarchs’ 50 per cent stake in TNK-BP, the Russian joint venture that was created eight years ago.

For Mr Dudley the stakes were high: agreement on a buy-out was critical if BP was going to be able to complete a proposed $16bn share swap with Rosneft, the Russian state oil champion, by a midnight deadline on Monday. An agreement would enable BP to team up with Rosneft to explore the untapped reserves in the Arctic and provide it with a key source of future growth after last year’s Gulf of Mexico oil spill.

Despite the fireworks that have characterised the relationship between BP and Alfa-Access-Renova (AAR) – the vehicle through which the Russian billionaire partners hold their stake in TNK-BP – over the years, people familiar with the discussions said the mood on Sunday was “thoughtful” and “businesslike”.

By Sunday evening the two sides were “very very close” to clinching an agreement that would have seen BP and Rosneft jointly acquire AAR’s stake for about $32bn. In exchange, the partners would have received some cash as well as a proportion of shares in BP. Mr Fridman, said one person close to the discussions, wanted a higher proportion of shares than the other two.

While the meetings broke up with no final agreement, by Monday morning the situation had already become more complex as it became clear there were still disagreements between AAR and Rosneft. Talks continued by telephone between the three parties throughout Monday and into the evening, with some people believing a deal could still be struck before the midnight deadline.

On Tuesday morning those hopes were dashed. BP and AAR jointly announced that the swap with Rosneft had lapsed with no agreement but stressed that talks would continue.

People close to the negotiations said no one particular obstacle led to the breakdown in talks, noting the situation was made more complex by being a three-way deal and that the companies simply ran out of time.

“It’s not a big breakdown with people throwing their toys out of the pram,” said one person.

One of the sticking points was agreement on the sequence of events and which company would carry the risk between exchange and completion. Rosneft wanted to complete the share swap by Monday’s deadline and then complete the buy-out of AAR’s stake at a later date, giving no certainty to the Russian oligarchs that the deal would happen.

While BP on Tuesday insisted talks would continue, the tone from Rosneft was anything but conciliatory. One person close to Rosneft said: “It all collapsed on [AAR’s] insistence that they needed the cash and shares first and only then would they lift the legal injunction.”

Others, however, remained optimistic, insisting some kind of agreement was still possible in the future.

“This is a lapse, not a collapse,” said one person familiar with the negotiations.

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