Stockholm TNK-BP ruling puts BP Rosneft deal on ice

The arbitration process entered into by BP and its AAR partners in the TNK-BP joint venture, to determine the future of its development and share swap agreement with Rosneft, has blocked the Rosneft link up.

The move to arbitration came after the AAR consortium, representing the Russian tycoons in TNK-BP, sought an injunction on the proposed share swap and development joint venture announced between BP and Rosneft unveiled in January.The AAR consortium believes that, under the shareholder agreement governing the operation of TNK-BP, BP needs to work through TNK-BP in Russia and that the proposed BP tie up with Rosneft contravenes that agreement.The arbitration decision by the Stockholm arbitration court has essentially upheld that view.In the wake of the decision BP issued a statement stating that it would continue to negotiate with its partners in TNK-BP to resolve difference and allow the link up with Rosneft to proceed, as well as pursuing a determination which would allow the share swap with Rosneft, which would see Rosneft receiving 5% of BP shares in exchange for 9.5 % of its own, to proceed alone.“BP said it was disappointed that these agreements, which are important for Russia, for Rosneft and for BP, cannot for now go ahead in the form intended, due to legal challenge by AAR. BP intends to continue to honour the TNK-BP shareholders’ agreement to which it is a party with AAR, and will respect the decision of the arbitrators. The arbitral tribunal was convened to resolve the issues raised by AAR relating to the share swap agreement and Arctic exploration arrangements agreed between BP and Rosneft and the parties’ obligations under the TNK-BP shareholders’ agreement.”The Stockholm arbitration decision came after two TNK-BP Board of directors meetings in February and March which had failed to approve TNK-BP participating in the joint venture with Rosneft, with BP appointed director not voting in favour of the proposal, and after Rosneft had issued a statement saying it was seeking to work with BP and not TNK-BP.Speaking with Business RT after the announcement of the Stcokholm Arbitration Court decision AAR CEO Stan Polovets said that BP would need to rebuild its relationship with Russia and the Russian partners in TNK-BP.“The tribunal was very clear that BP was in beach of its shareholder agreement and it cannot proceed with completing this transaction.The result of this is that BP’s action have caused a significant deterioration between BP and AAR in the management of TNK-BP.I think BP will have to spend a lot of time rebuilding the trust with its partners and the management of TNK-BP, and also will have to spend a lot of time rebuilding its reputation in Russia.”Uralsib Chief strategist, Chris Weafer, said that the proposed tie up between BP and Rosneft is too important not to proceed meaning that all the parties will now have to negotiate an outcome acceptable to all.“I think this deal is far too important for Russia, this is a strategic deal for the Russian state involving the country’s biggest oil company and one of the world’s biggest oil majors in the development of the Arctic, so this deal must go ahead, it’s too important.So I think what happens now basically is that we get into a more serious phase of negotiations involving all of the parties with a view to reaching a deal.I would expect the state to have a considerable role in these discussions as well, because they need to reach an impasse.Clearly from AAR’s point of view they did not want this deal to go ahead with them excluded because they could risk being sidelined in the oil industry and not getting access to future growth.So whatever deal is nowdone, and I believe a deal will be done, that deal will have to either involve the AAR shareholders or provide them with some other compensation for the deal.”