Awwal 01, 1432, Feb 04, 2011, SPA -- BP's local partners in Russian oil company TNK-BP are in talks to sell their stake to Rosneft or the government, Vedomosti business daily reported, drawing a denial from oil producer Rosneft, according to Reuters. State-controlled Rosneft, which reported a 63 percent rise in 2010 net profit on Friday and a 50 percent rise in free cash flow, struck a share swap and Arctic exploration deal last month with British major BP, which owns half TNK-BP. AAR, a Russian shareholder consortium that owns the other half of TNK-BP, is fighting to stop the proposed joint venture, which is backed by Russia's prime minister, Vladimir Putin. It says BP was obliged to pursue its business in Russia through TNK-BP, and this week secured a court injunction in London to freeze the Rosneft negotiations. "We are not in talks about buying AAR's stake or TNK-BP itself. Of course not," Rosneft president Eduard Khudainatov told Interfax news agency. A source close to the TNK-BP board said the Vedomosti report was total nonsense, adding: "As the company has said, we are just looking to use the business opportunities presented in this (BP-Rosneft) deal". The source would not comment on the specifics of the proposed partnership -- the share swap and drilling venture. A spokesman for Rosneft chairman Igor Sechin, also deputy prime minister, declined to comment. AAR was not available to comment. BP said it was up to TNK-BP to comment on the issue. A state industry source said the Vedomosti report could reflect an initial negotiating position by the AAR consortium of three investor groups owned by Russian and Ukrainian-born billionaire oligarchs. "They just are starting to fish around," the source said. Analysts were unsure what AAR hoped to achieve by opposing the deal, not least given it is backed by Putin. A sale of AAR's TNK-BP stake to Rosneft could offer a way out of the conflict. Rosneft has been ill positioned to make acquisitions in recent years when oil prices dipped to multi-year lows and it was burdened by debt acquired to pay for assets once owned by bankrupt oil company YUKOS. But in earnings reported on Friday, Rosneft said its cash flow from operations rose nearly 50 percent to $15.2 billion last year, while net debt fell a similar sum to $13.7 billion at the year end. It reported 2010 net profit of $10.7 billion, compared with a forecast for $10.4 billion. The Vedomosti report said the two sides were discussing a swap of TNK-BP shares for state-controlled shares in Rosneft, perhaps with a cash element. A Vedomosti source close to Khudainatov said Rosneft was looking into buying out AAR. "The management of the company was told to prepare for the purchase of the stake of Russian TNK-BP shareholders," the source said. TNK-BP has a market capitalisation of $45 billion. Analysts said Rosneft's falling debt levels meant it would not have problems raising cash should a deal materialise. "Rosneft ... could raise an additional $20 billion before its net debt/EBITDA level breaks 2.0, and we believe the market will tolerate higher debt levels as well, considering TNK-BP's free cash flow generating potential," Troika analysts said. Rosneft's 2010 EBITDA rose around 40 percent to $19.2 billion.
