TNK-BP takeover suits Kremlin’s ambitions
WHEN Igor Sechin, President of Russian oil giant Rosneft, announced that his company was ready to put up US$61 billion to acquire its rival TNK-BP, he proudly proclaimed that this was the ‘third-largest deal in history’.
Following the acquisition of Russia’s third-largest oil company, Rosneft - majority-owned by the state - will be the largest crude oil producer in the world. It will produce 4.6 million barrels of oil equivalent per day, representing roughly five per cent of global production.
Commenting on the deal, Russian President Vladimir Putin acknowledged that approval was in stark contradiction to the government’s policy to reduce its presence in the economy.
But there can be little doubt that the Kremlin is pleased. Its ambition to emerge as a global ’energy superpower’ has been given a boost, with a powerful national champion, and its clout over domestic energy companies has been strengthened.
If Rosneft and gas giant Gazprom, in which the state also owns a controlling stake, are combined with oil and gas company Tatneft, controlled by the government of the prosperous republic of Tatarstan, the Russian state controls 53 per cent of the country’s oil.
The main question is what this will mean for oil sector performance. Given that oil accounts for about 40 per cent of export revenue, 35 per cent of tax revenue and 12 per cent of GDP, it is no small matter.
During the troubled 1990s, Russian oil production fell to an average of six million barrels per day (bpd), little over half the level achieved in the USSR. During the first two terms of the Putin presidency, in 2000-08, Russian private oil companies managed to boost output to over nine million bpd, and today it stands at just above 10 million bpd.
Rosneft, as the only remaining state-owned oil company, was manoeuvring in the background.
In early 2011, it first attempted a major share swap with BP, to jointly explore the Arctic oil and gas riches. When that failed, it instead entered into a deal with ExxonMobil for the same purpose. And in October 2012, it absorbed TNK-BP.
While the Kremlin may be pleased, markets worry that increasing state control will mean deteriorating oil sector performance.
But perhaps the most intriguing aspect of the deal concerns the role of BP.
Following a long struggle to secure a firm foothold in the Russian energy sector, BP has now achieved a 20 per cent stake in Kremlin-controlled supergiant Rosneft.