Slick $8bn for BP shareholders as Russian venture ditched

Oil biz BP has announced that it will buy back $8bn worth of shares, giving investors back all the money originally sunk into the troubled Russian project.

by Michael Northcott
Last Updated: 19 Aug 2013

It was a notoriously fraught partnership with the Russians in the TNK-BP joint venture, but now that BP has sold its chunk to majority state-owned Rosneft for $17.1bn cash and some shares in Rosneft, it has got some bunce to play with. In a sign of the firm’s chastened condition however (thanks to a dirty great oil spill in the Gulf of Mexico), it is spending $8bn buying back shares instead of buying new oilfields or acquiring companies.

Chairman Carl-Henric Svanberg said: ‘We expect our stake in Rosneft will generate long-term value for BP and it shareholders. But this buyback programme should allow our [them] to see benefits in the near-term from the value we have realised by reshaping our Russian business.’ If we’re honest, shareholders will probably be pretty happy to get their hands on some cash, especially given BP’s share price performance since the Deepwater Horizon spill.

Ditching the Russian venture is in many ways a relief for BP, which last year looked like it was facing forced sale terms at a knockdown price. The tensions between the British firm and the other 50% shareholder (a group of Russian billionaires called AAR) have been obvious to the international business community ever since Bob Dudley, currently chief exec at BP, was booted out of the top job at the Russian venture back in 2008. 

It was, however, extremely lucrative - the TNK-BP business has yielded around $19bn in dividends, accounts for 29% of BP’s entire production, and more than a quarter of its oil reserves. So being blotted out of the Russian oil industry will mean taking a serious haircut to revenues. The question now is, what will BP do with the other $9bn from the sale?

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