Archive for January 16th, 2011

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BP, Rosneft and the ripples it will cause

January 16, 2011

Well dear readers, not directly involving Ukraine, other than the TNK-BP and Rosneft presence here, the share swaps that occurred yesterday between BP and Rosneft are likely not to be without controversy.

BP already owned 3% of Rosneft before yesterday and is also a major stakeholder in TNK-BP as the name would suggest.

I cannot ever remember  a share swap between oil companies of this size and on the scale of yesterday before.  Rosneft, if memory serves is about half the size of BP in commercial terms.

Nothing wrong in what has been done of course, it is the nature of the free market……with of course a political will behind it.  Rosneft is chaired by the Russian Deputy Prime Minister and has been looking for a way to explore outside Russia and the surrounding nations and BP has been looking to get more active in Russia.

A business and political fit that seems fairly comfortable.

I am not sure whether BPs 9% share holding in Rosneft as announced yesterday, is additional is additional to the already held 3% giving BP a total of 12% of Rosneft.  75% of Rosneft is owned by the Russian State and I assume the remaining 13% by various shareholders since Rosneft was floated in London some years ago.

Rosneft in turn have taken a 5% share in BP, which would on the face of it, back up my above guess that BP is about twice as large commercially as Rosneft.

All fair enough and in the interests of both parties as long as BP and the Russian government can stay on a cordial footing which has not always been the case in the past.

It will be interesting to see what happens with TNK-BP over the next few months.

Meanwhile, only some weeks ago, the British Government along with many others were publicly condemning the continued detention of Mikhail Khodorkovsky and fellow inmate Lebedev after the were found guilty of further charges of fraud and tax evasion relating to Yukos Oil.

Many of the Yukos assets when it was broken up by the Russian State after their imprisonment were given to Rosneft.  So the British Government some weeks ago are condemning the Russian State for their continued imprisonment whilst now accepting a major role of BP with the recipient of assets stemming directly from the jailing of Mikhail Khodorkovsky.

Now of course it will be argued that BP is no longer a British State company but a free market player and this is quite true.  However, just as with BAE Systems, BP often has the government “go into bat” on its behalf with other foreign governments.  It still serves the British Government (regardless of party) to have the BP flagship doing well considering a lot of pension schemes of British people rely on their share dividends to pay pensioners directly or indirectly.

Aside from this human rights link, there is of course the environmental issues in the USA hanging over BP.  Given the absolute paranoia that is associated with “national security” in the USA, you can bet some ill infomred congressmen and/or senators will consider Rosneft owning 5% of BP a national security threat to the USA…….somehow…….given BPs leases and current actions in the USA.

Given Russian involvement in taking and storing US nuclear waste and other “sensitive” agreements between Russia and the USA, this share swap hardly registers as a national security issue in comparison……but knee-jerk paranoia from politicians within the USA has become something of the norm sadly, so it is a fair bet someone within the USA will call this share swap a “national security threat” given there is not much love for BP in the USA anyway and Russia will forever be the enemy (along with China and anyone else who disagrees with the USA of any size and capability).

Staying in the USA, I am sure the risk managers in BP will expect nationalist rhetoric from some within the US political circles over getting into bed with Rosneft and thus the Russian Government.  This may well assist the USA and BP in ending their relationship without litigation over canceled permits/leasing agreements and pending environmental fines, one canceling out the other, or it may set the free market against government in a battle with severe economic outcomes for one or the other…..particularly as the UK, because of pensions liabilities tied to BP shares, will have to stand up for BP and now so will Russia having a reasonable stake in BP via Rosneft.

It will be very interesting now to watch the reaction of the human rights groups, as and when they make the link between the UK government, BP, Rosneft, Yukos and Mikhail Khodorkovsky as well as the US political scene and the almost guaranteed paranoid rhetoric by some within, that this represents a threat to US national security.

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