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. Last Updated: 07/27/2016

Gazprom, TNK-BP Seen in Asset Swap

As Gazprom eyes a stake in TNK-BP, a transaction involving an asset swap looks more likely than an all-cash deal, people familiar with the matter say.

Confirmation last week that BP and Gazprom have intensified talks on TNK-BP has revived speculation that the gas monopoly will buy out the co-owners of the country's No. 3 oil firm -- Mikhail Fridman, Viktor Vekselberg and Len Blavatnik.

But, with crude prices close to $100 per barrel, paying cash for oil assets does not look too smart. Gazprom would have to raise over $20 billion to buy control, a tall order even for the world's largest gas company at a time of tight global credit.

An alternative structure could feature an asset swap to widen a strategic pact struck in June, when BP agreed to cede control of its Kovykta gas field in eastern Siberia to Gazprom and form a broader international partnership.

A sale "is not a question for the short or medium term," a source close to one of the TNK-BP partners said. "Talks with Gazprom are being held exclusively on the theme of exchanging assets."

The two sides had been aiming to close the Kovykta deal by the end of this year. But a second source familiar with the talks said a wider transaction to bring Gazprom into TNK-BP as an owner would not be derailed by any delay on Kovykta.

"If there's a much bigger strategic deal, Kovykta doesn't undermine it. It would get folded in," said the source, speaking on condition of anonymity.

An asset deal might help BP save face by allowing its 50 percent stake to be diluted rather than having to sell, as Shell and its partners did when they sold control of the Sakhalin-2 oil and gas project to Gazprom a year ago.

BP chief executive Tony Hayward reiterated Thursday that BP had "absolutely no intention of selling" its TNK-BP stake, bought by his predecessor John Browne in 2003 for $7 billion.

That transaction included a lockup agreement that prevents TNK-BP's partners from selling out for five years and awards BP the right of first refusal to buy them out, analysts said.

Gazprom export chief Alexander Medvedev said Friday that no talks on TNK-BP would be held before the lockup expires within months.

But, the second source said, the pact poses no obstacle to an earlier transaction if all parties agree to dissolve it: "The lockup is a red herring if you have willing partners."

Industry sources said Blavatnik and Vekselberg, who own one-quarter of TNK-BP through their holding companies Access Industries and Renova, were likely sellers at the right price.

Both have extensive industrial interests that require major investments. Blavatnik, a naturalized U.S. citizen based in New York, has expanded into chemicals, while Vekselberg has emerged as a major player in the Russian power sector.

But Fridman, who owns a further quarter of TNK-BP with his partners in Alfa Group, is resisting and may be holding out for a deal in which he would get Kremlin backing to develop his telecoms interests.