Last updateWed, 04 Mar 2015 2pm


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Hold rating placed on BP plc shares

Equity analyst says it's hard to see upside for BP shares after collapse of share swap with Rosneft.

Equity analyst says it's hard to see upside for BP shares after collapse of share swap with Rosneft.

BP plc's (LON:BP) deal with Rosneft regarding a share swap to give BP interest in Arctic exploration collapsed today. According to Equity Analyst Iain Reid from Jefferies Investment Bank it's hard to see how this can result in an upside for BP shares. With a price target of 500.00 per share and a current price of 438.45 per share the research analyst put a Hold rating on the BP stock.

Iain Reid: "Media speculation is that BP-Rosneft attempted to buy out the Russian partners Alfa-Access-Renova (AAR) who own 50% of TNK-BP, but the terms could not be agreed. Various newswires have mentioned 'sources' who claim the amount offered to AAR was in the US$30-32 billion range. We hold US$32 billion in our BP sum-of-parts, so if offered we would view this as a reasonable amount, and may suggest BP and Rosneft may not be too far away from a deal with AAR.

"A further complication is that Russia is not keen on foreign players owning more that 50% of Russian energy companies, hence any deal would have to provide a mechanism for Rosneft to assume control of the whole AAR stake.

"The way forward is unclear," Reid says. "BP may try another form of the deal, continue to try to buy out the Russian partners, or Rosneft may choose another, less complicated partner. Given the potential of the opportunity, we think it would be surprising if the other global majors were not interested in taking BP's place, although we believe most would baulk at the share swap element."

If BP were to offer another share swap to Rosneft at today's prices it would be less favourable for BP shareholders. Since January 14th, when the original US$7.8 billion share swap arrangement was agreed upon, BP's shares versus Rosneft have had a relative decline of 17% in US$-terms.

"Either way, it's hard to see how this results in upside for the BP shares. The messy outcome of the deal, which was announced with much fanfare in January, has dented its management's reputation. In the US the ongoing legal processes over the Macondo liability also still seem to be far from a resolution. We are maintaining our 500p/share price target and Hold rating on the stock," Reid concludes.

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