A $3.1 Billion Jealousy Suit
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- Published on Friday, 27 July 2012 13:50
- Written by Sara Nunnally, Editor, Inside Investing Daily
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A soured relationship in the oil industry plays out like a soap opera... but like any good soap opera, the relationship should never go away, especially if there's something to be gained by it.
It sounds like a jealous rift... a soap opera in the oil industry. Did you catch this storyline?
From Bloomberg:
A court in the Siberian oil city of Tyumen ruled in favor of a TNK-BP minority shareholder who sued BP for damages, claiming BP's attempt to form a strategic partnership with state-run OAO Rosneft hurt TNK-BP's value.
Andrey Prokhorov, a minority shareholder for TNK-BP, originally asked for 409 billion rubles (US$12.73 billion), but the court awarded $3.1 billion.
TNK-BP is a joint venture between British Petroleum (BP:NYSE) and Alfa Access Renova (AAR), a group of Russian billionaires, begun in 2003. For the past few years, this venture has made up about 25% of BP's global oil production. In other words, it's a big deal, and a lucrative one, too.
According to the Associated Press, BP raked in $3.7 billion in dividends from the partnership last year alone. In total, TNK-BP has sent $19 billion to BP's coffers.
But last year, the relationship soured.
Here are the lurid details.
In the first half of 2011, BP and state-owned Rosneft were in talks for a £10 billion (US$15.75 billion) tie-up that would give BP access to Arctic oil. But in order for the deal to be completed, BP would have to convince those Russian billionaires to sell their 50% stake in TNK-BP.
Now here's the interesting part. Those billionaires weren't against the BP-Rosneft partnership.
"AAR sees significant benefit to developing co-operation with Rosneft within the framework of the TNK-BP shareholder agreement," said Mikhail Fridman, chairman of AAR, "and we plan to continue discussions about potential collaboration among BP, Rosneft and AAR."
It was just a question of timing.
I can hear the screenwriters now... "Caroline, I love you, but I'm at a point in my life where this just wouldn't work. Another time, another place? Things would be different."
Well, that excuse wasn't good enough for minority shareholder Andrey Prokhorov. He owns 0.00001% of TNK-BP, and he argued that the failed deal hurt the ventures value.
BP disagreed. Vladimir Buyanov, a spokesman for the company in Moscow, said TNK-BP didn't and wouldn't suffer damages or lose out on profit from the Rosneft deal.
While the court ruled against BP, the story gets a strange twist. BP said it wants to unload some or all of its stake in TNK-BP... And guess who's interested.
Rosneft. The state-owned company said it wants to take over BP's entire 50% stake in TNK-BP, and AAR says it's not opposed to working with Rosneft! But that's not the best part. The billionaires are also interested in buying out BP, and they've got 90 days to negotiate in good faith.
But it looks as though Rosneft is going to end up on top.
The 50% stake is worth about $18 billion -- or just about the value of all the dividends BP collected since 2003.
Man, talk about tangled... Anyone else think there's a powerful mastermind behind this whole thing?
First the billionaires effectively block a BP tie up with Rosneft -- keeping the British oil company out of Artic oil fields the size of the North Sea. Then a shareholder sues BP for the supposed negative effect on TNK-BP's value from the failed deal...
And wins.
Then both Rosneft and the AAR billionaire both say they are interested in BP's share of the venture.
Hmm, things are looking mighty tasty for these two suitors. Russia has already put severe restrictions on who can explore for oil in its arctic reserves. And now it appears that Russian companies are elbowing out international producers.
At least, that's the way it looks to me.
Next week? Who knows were the plot will take us.
In the meantime, oil prices are up again today, near $90 a barrel.
Look at that bounce back off the lows from June. That's pretty impressive. And even though we're well below price levels even from May, this move is making oil bulls pretty happy.
We're seeing some supply issues from producers. Chevron (CVX:NYSE) reported profits from its oil and gas production business were down 18% this quarter. Exxon Mobil (XOM:NYSE) missed earnings expectation on lower production, too.
With production slipping for a number of big-name companies, deals that give access to new oil -- even if it is 10 years down the road -- are important.
And I'm confused as to why BP's backing out of TNK-BP. I know the rift is getting hard to cross, but like any good soap opera, the relationship should never go away, especially if there's something to be gained by it.
BP will release its earnings next Tuesday. We'll see where they stand then.
Happy Investing,
Sara
Editor's Note: Congress, billionaire investors, and an oil tycoon -- I'm breaking a story that involves them all. It's all tied to H.R. 1380: The energy bill being "fast-tracked" through Congress so Obama can sign it ASAP. And no wonder -- you won't believe how Big Wigs have positioned themselves for major profits. The good news is I'm cutting you in, too. Get all the details on this story here.
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