One of the biggest oil deals in history was concluded this week. The Russian state-run company Rosneft is now on par with energy giant Exxon Mobil.
The deal concluded this week is worth around $55 billion USD.
The deal works like this: Rosneft will buy TNK-BP which is Russia's third largest oil company (after Rosneft and Lukoil ). Half of that is BP share. BP (British Petroleum) will in exchange get $12.3 billion of cash and 18.5 percent of Rosneft, raising its holding to 19.75 percent.
BP will have two seats in the board of the new mega giant which Reuters says will be pumping more oil and gas than Exxon Mobil after the deal.
Rosneft will also buy the other half of TNK-BP for $28 billion in cash from A.A.R., the consortium formed by the Russian oligarchs to manage their half of the venture.
"This is a very good signal for the Russian market. It is a good, large deal. I would like to thank you for this work," Russian President Vladimir Putin told powerful chief executive Igor Sechin at a meeting on Monday.
"This deal is in line with the Russian government's strategy of reversing the privatization of oil and gas resources that took place in the 1990s," said Andrey Golubov, a finance lecturer at Cass Business School in London.
BP is now betting that a relationship with the Russian state company will be a better route to the deals it wants to drill offshore in the Arctic Ocean. Exxon Mobil, Eni of Italy and Statoil of Norway already have such deals.
The acquisition, subject to Russian government approvals, will give Rosneft extra output and cash flow to finance exploration of Russia's vast reserves to replace ageing and depleting fields.
The only oil and gas acquisitions that have been bigger than today's deal are Exxon's merger with Mobil Corp., an all- stock deal valued at $80 billion when it was announced in 1998, and BP's $56 billion purchase of Amoco Corp. the same year.