BP: BP is facing uneasy and costly options after an arbitration court ruled in favour of its partner in TNK-BP, the Russian oil company, which argued that it had violated their shareholder accord by agreeing on a tie-up with Rosneft, the Russian state-owned oil group.
A likely scenario is that the deal will collapse. That would be damaging for BP's credibility, especially in Russia. Rosneft is in talks with other companies such as Exxon and Shell, and could find other partners to develop Arctic resources.
BP might instead agree to cave in to its Russian oligarch partners' demands that TNK-BP replace it in the deal, both in the planned share swap with Rosneft and the Arctic joint venture both companies were planning to launch. TNK-BP would buy the new shares BP was to issue to Rosneft, and then swap these for a stake in its larger Russian rival - as BP would have done. The main problem is that Rosneft has already ruled out having TNK-BP as a partner - although it might change its mind if this is the only way to save the deal.
Then there's the scenario whereby BP would simply compensate its TNK-BP partners. So far, the approach has failed. The oligarchs reportedly turned down an offer of several hundred million dollars. Both TNK-BP and its Russian owners have made their position clear — they want in, or no deal — and now they are on firm legal ground.
So the price of the oligarchs' consent would now probably be in the billions. They could listen to an offer to exit TNK-BP, though they have so far denied any intention of doing so. But cash-strapped BP would find it difficult to raise the $30 billion they are reportedly seeking for their 50 per cent stake. Rosneft may find it easier, although the mooted price still represents around five times its annual free cash flow. Such a resolution could satisfy BP's shareholders. Perhaps the least attractive option is the one currently being mulled by BP, a standalone share swap with Rosneft, shorn of any strategic component or the possibility of joint projects in Russia. That would be a very hard sell, either to Rosneft or to BP's own shareholders.
Investors took a benign view of BP's problems on March 25, shaving 1 per cent off the share price. But the company has lost more than 3 billion pounds of market capitalisation since early March, when the dimension of its legal problems became clearer. At some point shareholders may want to ask the company's chairman, Carl-Henric Svanberg and its chief executive Robert Dudley, supposedly a Russia expert, for a full account of how exactly they got BP in this inextricable mess.
