NK Rosneft' OAO Agrees To Acquire a 50% Stake In TNK-BP from BP Conference Call

Oct 23, 2012 AM EDT
BP.L - BP PLC
NK Rosneft' OAO Agrees To Acquire a 50% Stake In TNK-BP from BP Conference Call
Oct 23, 2012 / 08:30AM GMT 

==============================
Corporate Participants
==============================
   *  Igor Sechin
      NK Rosneft OAO - Chairman of the Management Board, President

==============================
Presentation
------------------------------
 Igor Sechin,  NK Rosneft OAO - Chairman of the Management Board, President   [1]
------------------------------
 Good day, dear ladies and gentlemen. Today it's a big honor for me to inform you about the most important event in the life of our Company.

 Yesterday, Rosneft announced about signing of the agreements on principle terms and conditions of purchasing 50% stakes in TNK-BP from the actual shareholders of BP from an AAR consortium.

 This deal will consist of three parts. The first is the purchase of 50% stake from BP for $7.1 billion (sic - see slide 1 "$17.1 billion") in cash, and 12.84% stake in Rosneft -- on the balance of Rosneft.

 Second part of the deal is the purchase by BP of further in our Company. BP will buy 600 million shares for $4.8 billion in cash, 100% [Company] formed by the agency of -- the management of [the] property, which is the founder of the Rosneftegaz company. I have to say that in order to buy the stake of BP, the price of shares of Rosneft was $8 per share.

 The third part of the deal is the purchase of the AAR stake for $28 billion in cash. These price parameters are based on the first and second part of the deal.

 Rosneft plans to finance the cash component of the deal through the cash funds available on the balance of Rosneft and new credit funds. Completion of the whole elements of this deal will require final documentation and final approvals by the management boards of Rosneft and BP, and other regulation bodies, and it will take place, as expected, in the first part of the year 2013.

 We have started carrying out this work. I yesterday reported the issues connected -- related to the first stage of this deal to the President of the Russian Federation, and he made a commission on the -- making documents and the requirements directive. And as a result, Rosneft will acquire 100% of TNK-BP, and BP will become the strategic partner of Rosneft, with the stake of 19.75%, taking into account BP's existing 1.25% stake, which it has now in Rosneft.

 According to the Rosneft charter, this volume of shareholding will give BP the rights for two seats on the Board of Rosneft, comprising of nine persons.

 Acquisition of 100% stake in TNK-BP is a unique and attractive strategic opportunity to significantly increase the value of Rosneft for its shareholders.

 TNK-BP is an attractive investment, which, as expected, will lead to the increase on earnings per share of Rosneft, starting from the moment of the deal.

 This deal will lead to the -- as a result of this deal, Rosneft will have a major partner with a successful history of implementation of the best international standards in Russia.

 Rosneft, it welcomes BP as a second largest investor into the Company, and I'm convinced the technology and experience of BP, as well as its successful experience will allow us to strengthen the position of Rosneft.

 This -- Rosneft believes into the efficiency of BP, which was demonstrated during the implementation of TNK-BP project. And it is important that BP remains one of the largest investors into the Russian economy, which recognizes the potential of Rosneft and opportunities in the oil and gas sector in Russia [today].

 Level of investments hasn't been changed and our forecast of the volume of those investments will increase.

 Many of you know about TNK-BP. It's the third largest vertically integrated oil company in Russia, and is in the top 10 private oil companies in the world.

 Hydrocarbon resource are 14.9 billion barrels of oil reserves on a reserve replacement ratio of 1P and 2P categories. In the area of downstream, TNK-BP owns five refineries; three in Russia, one in Ukraine and one in Belorussia with total capacity of 0.8 barrels per day.

 TNK-BP is the largest exporter of oil into Europe and it also owns one of the largest networks of gas filling stations, including about more than 1,400 stations in Russia, Ukraine and Belorussia.

 TNK-BP will implement projects in Brazil, Venezuela, Vietnam and Ukraine.

 Acquisition of 100% of TNK-BP, allows Rosneft to become number one in the world on the proved reserves of hydrocarbon [tables] among the publicly traded companies and Rosneft will become the largest oil producing Company in the world.

 Proved reserves of Rosneft will increase from 23.4 billion barrels of oil equivalent, up to 38.3 billion barrels of oil equivalent, under classification of the PRMS.

 Production of liquid hydrocarbons will increase from 2.4 million to 4.1 million of barrels per day, and the total production of hydrocarbons will increase from 2.6 billion barrels of oil equivalent, to 4.6 billion barrels.

 Production of Rosneft will comprise 5% of total oil production and acquisition of TNK-BP will increase financial indicators of Rosneft by [60% to 70%]. For example, revenues and EBITDA for 2011 would be $152.2 billion and $36.6 million (sic - see slide 3 "$36.6 billion"), respectively, on the basis of preliminary calculations.

 We see some potential opportunities for our integration with (technical difficulty) as far as the production is concerned, will such fields as to Tagul, Suzun and Russkoye field, which could be developed by using the infrastructure of one core field.

 Currently we already negotiate with the TNK on joint usage of infrastructure of Yurubcheno-Tokhomskoye field for the oil produced. And this will allow, without any additional costs additionally, deliver around 6 million tonnes (sic - see slide 6 "7 million tonnes") of oil and reduce transportation costs.

 We will also look into joint development of Yurubcheno-Tokhomskoye and Kuyumbinskoye field. As far as gas assets, we see synergy between Rospan and Kynsko-Chaselsk group of fields.

 I will remind you that Rosneft acquired one of the major independent oil producers recently, so we have an excellent opportunity for this to increase our gas component for both of our Companies.

 I should also mention Verkhnechonsk field. This field is in Eastern part of Siberia, towards Yakutia. This field could be used as the organizing point for -- to deliver oil on the basis of contract between Rosneft and operation.

 We have this contract of delivering oil. This field is situated in the area of the pipeline Eastern Siberia to the Pacific, which is a unique base to become a source of oil to provide for this contract. Currently, part of the oil pumped through this contract, we take from another field, which is quite distant from that one.

 We also see a synergy potential and field optimization for oil logistics and petroleum products, as the combined assets will give us practically presence in all parts of Russia -- regions of Russia.

 One more substantial opportunity for synergy is the -- getting more favorable commercial conditions for our gas business. I would like to inform you that Rosneft signed substantial contracts for gas delivery, for operators in Russian Federation, and starting from 2016, we have some contracts signed for another 6 billion cubic meters of gas. These are long-term contracts, with the term for between 3 to 10 years.

 In addition to that, we see a potential to substantially decrease administrative, managerial costs and expenditure, and optimize our asset portfolio. We have a plan to analyze our relations with the suppliers, in the light of a substantial increase of volumes of procurement and capital investment.

 We also have a plan to analyze the staffing of both companies, and provide an opportunity to develop our staff and increase their skills.

 TNK-BP staff is known for its professional skills and experience, and we hope we'll continue working together successfully. Many of the staff already operate in the company.

 I can give you an example illustrating our -- [Mr. Miro] is our Vice President on Procurement, recently headed our TNK-BP branch in Ukraine. We also acquired one of the leading employees on IT in TNK-BP, and we got many employees from TNK-BP who came to work for us lately, and we'll continue looking to further opportunities. That's why the foundation -- there is a foundation for further work.

 This deal matches our global strategy, on five major directions; the first one being acquiring leading position in global market for oil; second, completion of the modernization program for refineries.

 The third one is affecting oil marketing and petrol products marketing, and internal and external markets, developing of gas business and our leadership in technologies.

 Acquiring TNK-BP will make Rosneft one of the major oil producing companies in the world. Secondly, some additional oil processing capacities of TNK-BP will provide opportunities to optimize our channels of deliveries and sales.

 Thirdly, adding Rospan will substantially increase the size of our gas business for Rosneft. Fourthly, it will lead to widening our sales channels and optimize our logistics.

 And finally, the experience of BP, the substantial experience of BP, to use certain modern technologies and implementing best standards in Russia will help to realize major projects from that.

 I'm confident that the results of this deal will have a positive effect on operational, financial parameters of the Company.

 And, in conclusion, I would like to thank you for your attention, and for your interest to our Company, and answer your questions.

------------------------------
Editor   [2]
------------------------------
 Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.






------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the 
Transcript has been published in near real-time by an experienced 
professional transcriber.  While the Preliminary Transcript is highly 
accurate, it has not been edited to ensure the entire transcription 
represents a verbatim report of the call.

EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional 
editors have listened to the event a second time to confirm that the 
content of the call has been transcribed accurately and in full.

------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other 
information on this web site without obligation to notify any person of 
such changes.

In the conference calls upon which Event Transcripts are based, companies 
may make projections or other forward-looking statements regarding a variety 
of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
identified in the companies' most recent SEC filings. Although the companies 
may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2017 Thomson Reuters. All Rights Reserved.
------------------------------