BP and Rosneft extend share swap deadline as AAR plays hardball

British oil major BP and Russian counterpart Rosneft, have extended the deadline for completion of their share swap to May 16, with the original proposal for the share swap and a joint venture becoming mired in arbitration.

In a statement BP said the extension of the deadline reflected the arbitration tribunals decision to allow BP and Rosneft to extend discussions on the share swap.  An injunction on the joint venture, which was announced on January 14 with the share swap was upheld by the tribunal after the AAR Consortium maintained that it contravened the shareholder agreement governing the operations of TNK-BP, stipulating that TNK-BP had the right of first refusal for all BP activities in Russia.In the statement BP affirmed its commitment to completing the arbitration process.“BP intends to continue with the arbitration process to obtain a final award on all outstanding issues, including whether or not the interim injunction should continue. “Rosneft, also in a statement, indicated it had accepted the extension of the deadline for the share swap with BP in expectation of a final arbitration decision by May16.  Rosneft President, Eduard Khudainatov, indicated he was hopeful of a rapid conclusion to the shareholder disputes involving BP and AAR, to enable the agreement with Rosneft to be fulfilled.“We hope for a fast resolution of disputes in the international courts between the Russian and British shareholders of the TNK-BP concerning projects connected with the Russian Arctic shelf.”The extension came amidst reports in the international media that talks between BP and AAR over a potential buyout of AAR from TNK-BP had stalled, with Interfax citing an unnamed source saying that BP had offered $27 billion for the 50% AAR stake in TNK-BP, which had been rejected. Other reports in the international media have suggested that AAR and TNK-BP could be seeking to sue BP for up to $10 billion over the deal with Rosneft announced on January 14.Vadim Mitroshin oil and gas analyst at Otkritie Bank, says the proposed BP- Rosneft deal has hit a roadblock, meaning both parties need to look at new options. “The BP – Rosneft share swap and joint venture deals have been held up because AAR – BP's partner and 50% shareholder in TNK-BP – believes that the BP-Rosneft alliance would violate provisions of the AAR-BP shareholder agreement. Given the current gridlock situation, one could think of two theoretical scenarios for Rosneft to proceed with the execution of its arctic JV plan. On the one hand, AAR may step into negotiations with BP (or Rosneft) on the sale of their 50% stake in the TNK-BP group. However, AAR is publicly denying its intention to sell. On the other hand, should BP fail to resolve its disagreements with AAR, Rosneft could find another reputable partner for its arctic exploration project, such as Shell or Exxon Mobil.”Gazprom analyst, Alexander Nazarov, doesn’t believe AAR will be looking to sell the stake, and believes that a negotiated outcome is necessary. “Despite all rumors I think AAR will look to sell its stake only if the price is with a good premium to the market assuming that TNK-BP is a very profitable and sustainable company and AAR can have a long investment interest in that oil asset. On the other hand, it is a matter of fact that the recent agreement on TNK-BP between BP and AAR clearly states the unique rights on BP partnership and joint business ruling. Although, even if the court decision will not be to the power of Rosneft and BP alliance, Rosneft have enough offers from international oil companies to support arctic exploration project. I should note that this deal, if happens, is not going to add to the cost of both BP and Rosneft but will, with out any doubt, broaden BP’s access to Russian oil projects and play an important role in Rosneft investment attractiveness as well as improve industry position globally. However, I reckon we should expect other forms of cooperation as a resolution of this dispute.”