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BP Hones Tie-Up With Russia's Rosneft

(c) Sky News 2012

BP is in talks to secure an indemnity against legal claims from a group of Russian oligarchs as part of a £16bn deal that would cement a partnership between two of the world's biggest oil companies.

BP and Rosneft, the Kremlin (Berlin: KML.BE - news) -backed oil giant, are this weekend locked in talks aimed at finalising what will become one of the most significant alliances ever struck in the energy industry.

I understand that part of the discussions is focused on securing an indemnity for BP against ongoing litigation from the oligarchs who own AAR (NYSE: AIR - news) , BP's existing Russian partner.

The oligarchs, who include some of Russia's most powerful businessmen, own the remaining 50% of TNK-BP. As Sky News revealed this week, they have struck a preliminary agreement to sell their shares to Rosneft.

It is unlikely that Rosneft would fully cover future legal claims against BP made by the oligarchs, but analysts believe AAR would be unlikely to pursue any action if BP strikes a formal deal with Rosneft that has the backing of Vladimir Putin, the Russian president.

People close to the talks between BP and Rosneft cautioned that there "remain a lot of moving parts", and that an announcement as early as Monday looked possible, but unlikely.

The broad thrust of the partnership currently being discussed would see BP selling its 50% stake in TNK-BP to Rosneft for $27bn (£16.8bn).

The Russian company would pay between $11bn (£6.8bn) and $13bn (£8.1bn)  in cash, with BP taking a stake of between 16% and 20% in Rosneft.

BP executives are leaning towards taking a larger shareholding in Rosneft because they believe it would signal an irrevocable commitment to the British company's presence in Russia.

BP would also gain either one or two seats on Rosneft's board.

An indemnity against legal action from the oligarchs is seen as an important, but not pivotal, issue by BP.

BP declined to comment.