BP to Raise Stake in Rosneft

UK oil giant BP plc (BP - Analyst Report) has shown interest in increasing its stake in the Russian state controlled group Rosneft from the existing 1.3%. However, BP’s purchase is dependent on the sale of its stake in a private Russian venture, TNK-BP.

The London-based group intends to increase its investment in Russia with the proceeds raised from the potential sale of its 50% stake in the $60 billion joint venture with Russian oligarchs. BP will move ahead with its efforts of gaining a larger share in Russia’s oil production regardless of whoever buys its stake.

BP’s investment would form a part of a complex pact, which would involve Rosneft’s purchase of BP’s interest in the TNK-BP venture. At the same time, BP has promised the Russian government that it would reinvest any proceeds received from the TNK-BP sale in Russian projects, including Rosneft itself.

BP had entered into the TNK-BP venture nearly a decade ago to utilize the country's resources. In July 2012, BP entered a 90-day period to discuss the sale with prospective buyers, which comprised the AAR consortium – a group representing the tycoons and with Rosneft. The structure of the deal has not yet been finalized.

Per the deal under discussions, Rosneft would acquire 25% shares of TNK-BP for $10-$15 billion cash, while the remaining 25% will be paid via shares of Rosneft. This would take BP’s stake in Rosneft to about 12.5%. Currently, Rosneft is in talks with banks about raising $15–$20 billion to fund the deal. However, Rosneft has no intentions of purchasing shares of BP.

BP, which recently disposed the Carson refinery in California to Tesoro Corporation (TSO - Analyst Report), carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We also maintain our long-term Neutral recommendation on the company.