Rosneft's oil refinery plant in the Krasnodarsky Region. Source: ITAR-TASS
Rosneft announced the completion of its 100 percent acquisition of TNK-BP. The Russian oil major paid $16.65 billion and 12.84 percent of its own stock for the 50 percent stake in TNK-BP owned by BP, both companies said. Rosneft also announced it had paid $27.73 billion for the stake held by AAR (Alfa Group – Access Industries – Renova). This brings the cash portion of both deals to $44.38 billion.
The establishment of TNK-BP – a joint venture between Britain’s BP and the AAR (Alfa Group – Access Industries – Renova) consortium – was solemnly announced in London in June 2003. Alfa Group co-owner Mikhail Fridman and BP CEO Lord John Brown signed the agreement in the presence of Russian President Vladimir Putin and British Prime Minister Tony Blair.
The newly established company started operating in August 2003, but it will celebrate its ten-year anniversary under different ownership. Rosneft bought 50 percent of TNK-BP stock from each of BP and AAR today. Rosneft had secured approvals from all regulators, including the anti-trust authorities in Russia and Ukraine, as well as from the European Commission. BP will get $17.1 billion in cash plus 12.84 percent of Rosneft, while AAR will receive $28 billion. The state-owned company will pay both shareholders around $1 billion in interest accrued since the end of last year, when preliminary agreements were signed.
President of Rosneft, Chairman of Rosneft’s Management Board Igor Sechin. Source: ITAR-TASS
Rosneft President Igor Sechin paid an official visit to BP’s London headquarters this week. With a 19.75 percent equity stake, BP has become Rosneft’s second biggest shareholder after the state.
The united company will be producing around 4 million barrels per day of oil – the world’s biggest output, and its reserves will amount to 28 billion bbl, the state-owned company’s materials state. According to Bank of America Merrill Lynch estimates, the united company’s 2013 revenue will reach $160.2 billion and its EBITDA $32.9 billion.
Rosneft has already set up a TNK-BP integration committee and expects to complete the integration within a year, Arkady Samokhvalov, an advisor to the Rosneft President, told a corporate publication. Top TNK-BP executives, led by Executive Director German Khan, will leave the company after the deal is closed. Rosneft Senior Vice President Eduard Khudainatov, who is now in charge of the integration drive, will lead the company, according to a source close to one of the sellers.
A source close to the state-owned company had previously told Vedomosti about such a possibility. Also, heads of key business units at Rosneft will be in charge of their counterparts at TNK-BP, too, a representative of the state-owned company said.
It is possible that TNK-BP might soon cease to exist altogether. Yet it will be difficult to run the united company without first bringing TNK-BP Holding (around 5 percent owned by minority shareholders and the rest by TNK-BP Limited, a company bought by Rosneft) into the fold, Otkrytie Capital’s Head of Research Aleksandr Burgansky warned.
TNK-BP Holding will become Rosneft’s biggest subsidiary, accounting for around 40 percent of the parent company’s output and for some $10 billion in operating cash flow annually. Also, the company must have accumulated a $4 billion cash pile on its balance sheet, Burgansky said. The money could be paid out in dividends. Yet, in the future, it would be better to consolidate the shareholding structure, according to Burgansky. It should not be a problem for the state-owned company, given that all former Yukos assets have long become Rosneft branches.
Overall though, the deal will lead to a deterioration in virtually every Rosneft key performance indicator. Production-related operating expenses will rise from $2.9 to $3.7 per barrel and refining operating expenses will increase from $3.04 to $3.17 per barrel, because most TNK-BP oilfields are more depleted, Dmitri Lukashov, an analyst at Solid investment company said. The share of oil refining in the united company will decrease from 48.5 percent to 45 percent (it was just 40.1 percent at TNK-BP). But the key synergy effect is expected to come from a reduction in ТНК-ВР’s administrative and management expenses, he said. For instance, after Gazprom acquired Sibneft, those expenses fell by almost a half (from $1.83 billion in 2005 to $1.05 billion in 2008). Finally, Rosneft’s Net Debt/EBITDA ratio, which stood at 1.2 at the beginning of this year, will reach 2.2 after the acquisition of TNK-BP, Dmitri Lukashov of Solid said. Even so, this will not be because of TNK-BP’s particularly high leverage but because Rosneft has raised significant funds to finance the deal (the cash portion coming to around $45 billion), he noted.
First published in Russian in Vedomosti.
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