If you can’t get on, move on. That should be the mood at TNK-BP. The joint venture’s two shareholders – BP and the AAR consortium of Russian oligarchs – are at war, and even wars have to end. A resolution of their legal dispute over BP’s new alliance with Rosneft in Russia almost certainly involves the UK company buying out AAR to terminate their contested shareholder agreement. How much should Bob Dudley, BP’s chief executive, be prepared to pay?
TNK-BP accounts for a fifth of BP’s oil reserves, a quarter of its production, and a 10th of its annual profit. Since 2003 the company has reaped earnings of $16bn on a $9bn investment. Analysts value it at anything between $32bn and $68bn, depending on the criteria used, such as production, reserves, discounted cash flow, and earnings. More important, however, is that the stake is almost certainly more valuable to BP because it offers the tantalising prospect of operational freedom in Russia, including the unfettered ability to pursue the long-term alliance with Rosneft, which refocuses BP strategically in Russia.
AAR claims the lost opportunities of BP’s alliance with Rosneft could cost TNK-BP up to $10bn; Mr Dudley might consider at least some of that a price worth paying for room to manoeuvre. Given the high stakes involved, he may have to offer a further sweetener. However, given its commitments in the Gulf of Mexico, BP should not overpay. Assume the joint venture is valued at $50bn, add a modest premium, and TNK-BP could be worth $60bn. Mr Dudley may have to find at least $30bn to unblock the Russian impasse. Steep. But factor in a contribution from Rosneft and $13bn of disposals already flagged, and it looks do-able.
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