Anglo-Russian Oil Venture in $1B Deal

By Sarah de Sainte Croix, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – At the end of last month TNK-Brasil (a Brazilian subsidiary of the Anglo-Russian oil company TNK-BP) signed a farm-in agreement with the Brazilian independent oil company HRT O&G. The arrangement grants TNK-Brasil a 45 percent stake in the Solimões Basin Project in the Brazilian Amazon in exchange for US$1 billion. The deal marks the British-Russian group’s first foray into Brazil’s rapidly expanding gas and oil market.

“This is an extraordinarily significant transaction because, to my knowledge, it is the first investment by one of the world’s largest international oil companies in a major concession operated by a Brazilian independent,” said Boyd Carano, partner at the law firm acting on behalf of HRT, Vinson & Elkins, to Latin Lawyer website.

The Solimões Basin Project is located in the heart of the Amazon jungle, 659 km southwest of Manaus. It comprises 21 oil and gas exploration blocks covering an area of approximately 48,500 square kilometers.

According to an independent report produced by the Texas-based petroleum consulting firm, Degolyer & MacNaughton, the blocks are estimated to yield around 789 million barrels of oil equivalent (BOEs) and production is expected to begin next year.

Chief Executive Officer of TNK-BP Mikhail Fridman said, “We are pleased to have signed these agreements with HRT on the Solimões Basin project, TNK-BP’s first venture in Brazil. The project will give us access to significant new resources in one of the world’s fastest growing markets. TNK-BP is looking forward to a long and successful business partnership with HRT, as well as to new opportunities to deepen our footprint in the region.”

TNK-BP will also have the option of buying a further ten percent of the project, giving it the controlling stake within two and a half years of the deal being closed.

TNK-BP is a joint, Russia-based venture held equally between the British oil giant BP and the Russian investment group AAR. Last year it signed a sales and purchase agreement for BP’s assets in Vietnam and Venezuela, saying, “The deal offers TNK-BP a solid foundation as it builds its business outside Russia.”

The company also owns almost fifty percent of another Russian oil and gas company, Slavneft, making it Russia’s third largest oil company. In all, TNK-BP accounts for approximately sixteen percent of Russia’s total production.

However, the news of this latest Brazilian deal comes at a time of turmoil for the Anglo-Russian firm. On Friday last week a court in Siberia dismissed two huge law suits filed by minority shareholders against BP over the failure of a planned strategic alliance between BP and state-controlled Russian rival Rosneft.

The claimants filed for more than €11.5 billion in damages, saying they had suffered serious financial losses and that the proposed deal violated an exclusivity clause in TNK-BP’s shareholder agreement.

When the Rosneft deal fell through last May, BP group chief executive Bob Dudley told the press, “TNK-BP has been an excellent investment for all parties since 2003 and it is gratifying that both BP and AAR have agreed to look beyond the disagreements of the past few months and to fully focus on this important and successful business we have built together.” The trial continues in the UK.