British energy giant BP Plc (BP,BP.L) on Friday said it intends to carry out a share repurchase program with a total value of up to $8 billion, following the completion of the sale of its 50 percent interest in Anglo-Russian oil joint venture TNK-BP to Russian state oil company OAO Rosneft (ROSN.L).
With the buyback program, BP expects to return an amount equivalent to the value of its original investment in TNK-BP to its shareholders.
TNK-BP, the third largest oil company in Russia, was a 50:50 joint venture formed in 2003 by merging the Russian oil and gas assets of BP and the oil and gas assets of Alfa-Access-Renova or AAR, a consortium consisting of a group of four Russian billionaire oligarchs. BP invested $8 billion for the stake in 2003 in cash, shares and assets, and has earned $19 billion in dividends since then from the joint venture.
Rosneft agreed in principle to the BP sale and purchase deal in mid-October, and signed definitive and binding agreements in November 2012.
On Thursday, BP announced the completion of the sale of its TNK-BP stake to Rosneft in cash and stock valued at about $28 billion. As part of the deal, BP also acquired an additional 5.66 percent stake in Rosneft from OFSC Rosneftegaz using $4.87 billion of the cash proceeds from the deal.
BP now noted that the sale was for an overall consideration of $12.48 billion in cash, including $0.71 billion in TNK-BP dividends received by BP in December 2012, together with shares representing 18.5 percent of Rosneft. As a result, BP now holds a 19.75 percent interest in Rosneft.
Commenting on the buyback program, BP Group Chief Executive Bob Dudley said, "BP is moving on to the next phase of its business in Russia, becoming the largest private shareholder in Rosneft, Russia's leading oil company. In the process we have also released cash, equivalent to at least six years of BP's anticipated future dividends from TNK-BP. We look forward now to working closely with Rosneft and together developing opportunities to create value for both companies."
According to Dudley, the size of the proposed buy-back program also reflected the reduction in BP's asset base following its major $38 billion divestment program over the past three years. The program is expected to exceed that required to offset the earnings per share dilution expected as a result of the sale of TNK-BP, the company noted.
Further, BP said it intends to retain the additional cash consideration of $4.48 billion received from the stake sale to reduce its debt as part of its continuing commitment to maintaining a strong balance sheet.
BP Chairman Carl-Henric Svanberg added, "We expect our stake in Rosneft will generate long-term value for BP and its shareholders. But this buy-back program should also allow our shareholders to see benefits in the near-term from the value we have realised by reshaping our Russian business."
In London, BP shares are currently trading at 456.65 pence, up 7.25 pence or 1.61 percent.
In Russia, Rosneft shares are currently trading at 240.02 Russian ruble, down 2.22 ruble or 0.92 percent.
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