BP, AAR close Russian deal, agree to include Slavneft in newly formed firm

BP PLC, the Alfa Group, and Access-Renova (AAR) Friday reported that they have completed the deal to combine their Russian and Ukrainian oil and gas businesses, which will serve as the final step in the formation of TNK-BP, a new company owned and managed 50-50 by BP and AAR.

Aug. 29, 2003

3 min read

By OGJ editors

HOUSTON, Aug. 29 -- BP PLC, the Alfa Group, and Access-Renova (AAR) Friday reported that they have completed the deal to combine their Russian and Ukrainian oil and gas businesses, which will serve as the final step in the formation of TNK-BP, a new company owned and managed 50-50 by BP and AAR.

Last month BP, Alfa Group, and AAR signed a sale and purchase agreement, moving them closer to completing the combination of their Russian businesses into the TNK-BP joint venture (OGJ Online, July 15, 2003).

Deal details
BP said it would pay AAR $2.6 billion in cash for its stake in the new company, together with three payments of $1.25 billion/year in BP shares payable on the anniversaries of today's closing.

In addition, BP inked a deal with AAR to incorporate AAR's 50% interest in OAO Slavneft into TNK-BP in return for a cash payment of $1.35 billion from BP, the companies said.

BP said that, "the main transaction did not for the moment include its share of the Sakhalin interest, which it originally intended to contribute to TNK-BP. The formation of a Sakhalin joint venture with license partner (OAO) Rosneft was still under negotiation and the Sakhalin interest could be contributed to TNK-BP at a later date."

BP said that, "the exclusion of Sakhalin, together with interest and other minor adjustments, accounted for the slight rise in its initial cash payment to AAR to $2.6 billion, up from the $2.4 billion estimate announced in June."

The completion of the Slavneft deal, BP said, is expected before yearend, pending approval from the regulatory authorities of the European Union, Russia, and Belarus. The deal will be effective from May 1, BP added.

The new company
"The creation of TNK-BP represents great progress towards meeting BP's long-term commitment to Russia," said BP Chief Executive John Browne. "In just 7 months, a truly major oil and gas company has emerged as an operating and competitive reality. The addition of the Slavneft interest into TNK-BP represents an important step in the building of the future of the company," he added.

TNK-BP, which is Russia's third largest oil and gas company, produces 1.2 million b/d of oil from its main fields in West Siberia and the Volga Urals. The Slavneft acquisition will increase the JV's production by 160,000 b/d of oil. Current production from the JV is 1.2 million b/d of oil.

Excluding Slavneft, TNK-BP will have a workforce of about 113,000 and 5.2 billion boe of proven reserves of which 3.2 billion bbl are expected to be recovered prior to lease renewal.