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BP, Rosneft set up $25 billion-plus TNK-BP deal 21.10.2012

(Reuters) - Rosneft and BP are preparing to announce a deal worth over $25 billion that could give the British oil company a stake of between 16 and 20 percent in the state-controlled Russian energy firm, sources familiar with the situation said.

The agreement, yet to be finalized but which could be made public on Monday or Tuesday, folds BP's half of TNK-BP, Russia's third-largest oil company, into Rosneft, in exchange for cash and Rosneft stock.

It allows BP to end a stormy relationship with its partners in the venture, AAR, and to pursue closer ties with a Kremlin that exerts a much tighter hold on the oil industry than it did in the 1990s when BP first invested in Russia.

TNK-BP is highly profitable and provides a quarter of BP's total production, but its fields are mature, and the Soviet-born tycoons who own the other half through AAR have blocked BP's search for growth in Russia through closer ties with Rosneft.

Executives at TNK-BP have in the past had run-ins with Russian law enforcement at times of friction between the shareholders, with two managers arrested in 2008 amid a dispute over strategy that forced then-CEO Bob Dudley, who now heads BP, to flee Russia.

Should the deal be finalized and survive a months-long approval process, BP's exposure to Russia would be lower, but it could secure it seats on the Rosneft board and closer ties than any of its rivals to Igor Sechin, the chief executive of Rosneft, who has a significant say in energy policy.

In a statement on Monday confirming the offer from Rosneft for the first time, BP said "no agreement has yet been reached".

The two sides have yet to work out a final cash and equity split, which will determine how much influence the British major will have on the board of an enlarged Rosneft, a source close to the Russian oil company said.

The source also said BP was aiming to get two directors on the board of Rosneft, which is already Russia's top oil producer.

If Rosneft buys out AAR's half of TNK-BP as well, it will control nearly half of Russia's oil output and pump more oil and gas than Exxon Mobil, the world's top international oil company.

The deal gives Rosneft extra output and cash flow to finance exploration of Russia's vast reserves to replace ageing and depleting fields. It keeps BP's expertise in Russia and provides the "quality" private shareholder President Vladimir Putin wants to show his critics he is pursuing a real privatisation agenda.

http://www.reuters.com/article/2012/10/22/us-bp-rosneft-idUSBRE89L06720121022

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