BP 2013 Annual Report Download - page 152

6. Disposal of TNK-BP and investment in Rosneft
Disposal of TNK-BP
BP announced on 22 November 2012 that it, Rosneft and Rosneftegaz – the Russian state-owned parent company of Rosneft – had signed definitive
and binding sale and purchase agreements (SPAs) for the sale of BP’s 50% interest in TNK-BP to Rosneft, and for BP’s further investment in Rosneft.
The transaction would consist of three tranches:
• BP to sell its 50% shareholding in TNK-BP to Rosneft for cash consideration of $25.4 billion (which included a dividend of $0.7 billion received from
TNK-BP in December 2012) and Rosneft shares representing a 3.04% stake in Rosneft.
• BP would use $4.8 billion of the cash consideration to acquire a further 5.66% stake in Rosneft from the Russian government at a price of $8 per
share (representing a premium of 12% to the Rosneft share price on the bid date of 18 October 2012).
• BP would use $8.3 billion of the cash consideration to acquire a further 9.8% stake in Rosneft from a Rosneft subsidiary at a price of $8 per share.
The net result of the overall transaction was that BP would receive $12.3 billion in cash (including $0.7 billion of TNK-BP dividends received by BP in
December 2012) and acquire an 18.5% shareholding in Rosneft. Combined with BP’s existing 1.25% shareholding, this would result in BP owning
19.75% of Rosneft.
On completion, the transactions between BP, Rosneft and the Rosneft subsidiary were instead settled on a net basis, so that BP received the 9.80%
stake in Rosneft directly rather than receiving and immediately paying $8.3 billion in cash; however, the net result was the same.
BP accounts for its investment in Rosneft as an associate, and so equity accounts for its share of Rosneft’s earnings, production and reserves. See
Note 18 for more information on BP’s investment in Rosneft.
The gain on disposal of BP’s investment in TNK-BP, recognized in the TNK-BP segment in 2013, was $12.5 billion as shown in the table below.
$ million
Agreed cash disposal proceeds 25,425
Amount settled net in Rosneft shares (9.80% stake) (8,309)
TNK-BP dividend received by BP in December 2012 (709)
Interest on cash proceeds 239
Disposal proceeds received in cash 16,646
Shares in Rosneft received (9.80% and 3.04% stake) 10,755
Consideration received 27,401
Less: carrying value of investment in TNK-BP (12,393)
15,008
Deferral of gain (2,959)
Gain on existing 1.25% investment in Rosneft 523
Other (72)
Gain on disposal of investment in TNK-BP 12,500
Disposal proceeds of $4.9 billion were used to purchase the 5.66% stake in Rosneft from Rosneftegaz ($4.8 billion described above plus $0.1 billion of
interest). The net cash inflow relating to the transaction included in net cash flow from investing activities in the cash flow statement was $11.8 billion.
Part of the gain arising on the disposal, amounting to $3.0 billion, was deferred due to BP selling its investment in TNK-BP to Rosneft, which in turn is
now accounted for by BP as an associate. The deferred gain will be released to BP’s income statement over time as the TNK-BP assets are
depreciated or amortized.
Investment in Rosneft
BP’s investment in Rosneft is included in the group balance sheet within investments in associates, as described in Note 1. The investment is
measured at cost less the deferred gain described above, plus post-acquisition changes in BP’s share of Rosneft’s net assets. The amount recognized
as BP’s initial investment in Rosneft was determined as shown in the table below.
$ million
Shares in Rosneft received 10,755
Shares purchased from Rosneftegaz 4,871
Value of agreements to purchase Rosneft shares accounted for as derivatives (see Note 26) (726)
Deferred gain (2,959)
Amount included in capital expenditure 11,941
Value of existing 1.25% investment in Rosneft 1,006
Investment in Rosneft on completion 12,947
The exercise to determine BP’s share of the fair value of Rosneft’s identifiable net assets and the consequent impact recognized via equity accounting
in BP’s income statement has been completed and the results are reflected in these financial statements.
148 BP Annual Report and Form 20-F 2013