Rosneft takeover of TNK-BP set to create biggest oil firm

BP to get stake in Russian giant with access to massive oil reserves in Arctic

Rosneft was on course to buy both halves of the TNK-BP Russian joint venture for an estimated $56bn (£35bn) last night after holding audacious overlapping takeover talks with the owners, BP and the AAR consortium.

The Kremlin-controlled hydrocarbon giant was negotiating with both sides of the 50/50 joint venture over two separate deals that would give it complete control of TNK-BP and transform it into the world's biggest oil company.

In its first deal, Rosneft is understood to have agreed to pay $28bn in cash to AAR, a quartet of Russian billionaires led by Viktor Vekselberg, to secure its half of TNK-BP.

For the second deal, Igor Sechin, Rosneft's chief executive and a close associate of President Vladimir Putin, flew into London yesterday afternoon as he sought to finalise the purchase of BP's stake. That transaction, which sources warned last night was still not a done deal, would also be worth about $28bn. However, this time Rosneft would pay with a mixture of cash and shares in Rosneft.

This would provide BP with billions of dollars of cash, which it needs to help pay off compensation claims relating to the 2010 Gulf of Mexico oil spill. It would also give the FTSE 100 company a substantial stake in an enlarged Rosneft and, in turn, access to Russia's vast reserves of oil and gas.

BP, Rosneft and AAR all declined to comment last night.

To complicate matters further, AAR had been involved in parallel negotiations to buy BP's stake in TNK-BP as it considered taking complete control of the joint venture. However, following its deal with Rosneft, it is understood that AAR has decided not to make an offer for BP's stake in the venture.

BP has set a deadline of 9am this morning to receive offers for its stake in TNK-BP and Rosneft was last night set to be the sole bidder. BP could make an announcement about a deal with Rosneft as soon as today.

An exit from the joint venture would come as a welcome relief to BP, which has had a fraught nine-year relationship with AAR. This has included court cases and harassment claims by Bob Dudley, then the head of TNK-BP and now BP's chief executive, which forced his exit from Russia in 2008.

Relations between BP and the Soviet-born quartet soured last year when AAR, which also includes Mikhail Fridman, German Khan and Len Blavatnik – blocked a proposed deal between BP and Rosneft to explore the Russian Arctic. The consortium argued that it violated the terms of the joint venture, which gave it first option on any dealings BP had in Russia.

Relations deteriorated further in May when Mr Fridman quit as TNK-BP's chief executive "for personal reasons".

BP put its stake up for sale the following month, in a move that presented AAR with the unpalatable prospect of going into business with Rosneft, a company with the force and backing of the Kremlin.

In a further sign of the twists and turns in TNK-BP's colourful history, AAR stands to make considerably less from the deal it has just struck with Rosneft than it could have done in the recent past. The consortium turned down a $32bn offer made jointly by BP and Rosneft last year as BP sought to end its fraught relationship with AAR, while keeping its foot in Russia.

The takeover of TNK-BP by Rosneft continues the Russian state's quest to take back control of its vast oil and gas production to ensure it gets a greater share of the profits.

Shares in BP rose by 13p, or 3 per cent, to end the day at 448.35p.

Big freeze: BP in Russia

2003 BP merges its Russian oil assets with three Russian companies, TNK, Sidanko and Onako, to create TNK-BP. BP owns 50 per cent stake, while AAR, a consortium of four Russian oligarchs, Len Blavatnik, Mikhail Fridman, German Khan and Viktor Vekselberg, takes the rest.

2008 Bob Dudley, chief executive of TNK-BP and later ceo of BP, leaves Russia and goes into hiding, citing a campaign of harassment.

January 2011 BP and Rosneft agree $16bn share swap to explore for oil and gas in the Russian Arctic.

May 2011 Rosneft-BP deal collapses after AAR wins an injunction against it.

June 2012 BP puts its stake in TNK-BP up for sale. Under the joint venture agreement, AAR has right of first refusal on the stake

October 2012 AAR agrees to sell stake to Rosneft for $28bn