TNK-BP Bob Dudley
Former TNK-BP President and CEO Bob Dudley Reuters

As BP gears up to sell its 50 percent stake in embattled Anglo-Russian joint venture TNK-BP, analysts tell IBTimes UK that such a sale, especially to a state-owned firm, could bolster BP's prospects, bring about key changes to management and prompt an influx of foreign investment to Russia.

Rosneft, which is 75 percent owned by the Russian government and led by Russian President Vladimir Putin's closest confidant Igor Sechin, confirmed its interest in BP's stake earlier Tuesday.

Despite TNK-BP being synonymous with in-fighting, battles at board level and directors publically saying that they want to end the executive level feud, the sale of BP's stake could actually spur Western foreign investment into the sector, as well as provide a healthy backdrop for BP's future.

"It doesn't matter what state-owned vehicle buys BP's stake in TNK-BP as it will provide around a $25bn cash payment to BP and will release them from being tied with AAR," says Malcolm Graham-Wood, analyst at VSA Capital Limited. "TNK-BP was a decent joint venture but the problem is with AAR, which has previously prevented BP selling, moving and of course entering other parts of Russia. It has got more and more difficult for BP to control AAR and get involved in more projects across Russia. The sale would result in a more positive outcome for BP than AAR because I have heard a number of times along the grapevine that they are not in good stead with the Putin regime, so I would be surprised if AAR will have an equal tie up with Rosneft - if they did buy BP's share."

Shoring up Cash for BP

Regardless who BP sells its stake in TNK-BP to, the sale could result in "north of $25bn" for the company that is looking to cut costs, shore up its balance sheet for litigation purposes and eventually deliver a higher return to shareholders.

BP has had to heavily depend on TNK-BP oil production over the last few years, after an explosion on BP's Horizon rig on the 20 April 2010, resulted in one of the largest oil spills and environmental disasters in history.

While the Gulf of Mexico oil spill resulted in an environmental disaster, it also caused colossal damage to the group's reputation and earnings. Even two years on, BP is still feeling the repercussions of the incident.

BP still faces significant legal liability for the disaster in the United States even after agreeing with the US Department of Justice to pay at least $7.8bn deal to victims of the explosion.

Moreover, BP was slammed by another US federal investigation that centres on claims that BP representatives lied to Congress about how much oil had leaked into the Gulf of Mexico, following the Deepwater well blowout in 2010.

The federal investigators findings could lead to additional criminal charges against current and former employees, should the investigators find evidence of wrong doing.

"Just as we worked with the government in responding to the spill, we are cooperating with its investigation," said a BP spokesperson to the IBTimes UK with no further comment on the report.

In late May, Bob Dudley, chief executive officer at London-based BP tried to quell investor concerns over the aftermath of the Gulf of Mexico oil spill, after selling off assets, lifting output and raising dividend.

Since the group is looking to sell assets but lift output in the Gulf of Mexico region, this sale could be exactly what BP needs.

BP has sold a number of assets to shore up cash, worth $23bn to date. It plans to raise $38bn in total before the end of 2013.

Despite the TNK-BP sale being seemingly a detrimental move for the UK group, it could be exactly what the group needs to broaden its portfolio and buoy up profits in the long-term.

"TNK-BP accounts for a lot at BP but the sale could mean that it can explore other parts of Russia and get involved with more lucrative fields elsewhere that it couldn't do in partnership with AAR," says Graham-Wood. "With the $25bn from the potential sale, if BP doesn't spend it all on giving it to shareholders and the US government, it could use it to gain back market share."

"BP no longer sits at the table with other super oil majors, because it isn't a super oil major company anymore. This was only highlighted further when for the first time the UAE did not invite BP to discuss oil field developments, which is something that the company had always been involved in, since its infancy."

Opening Up the Doors to Foreign Investment

As BP looks to exit the fraught relationship with AAR within the TNK-BP joint venture, at-face-value conclusions by some market participants has suggested it will ward foreign investors off investing in Russia.

However, analysts say that this could in fact have the opposite effect.

"If BP does sell its stake to a government owned entity, such as Rosneft, the first thing that would happen is the increase in the governments influence on the oil sector. The key issue going forward is how the government will manage efforts into bringing in private capital and western majors to develop key oil fields," says Andrew Latto, senior analyst at independent research firm Fat Prophets. "If Rosneft does buy BP's stake, then it may work out significantly in BPs favour and for foreign investment into the Russian oil market overall."

"It may lead to companies, such as TNK-BP to concentrate on siloed domestic production, leaving BP and other western oil companies to pursue other Russian ventures that won't conflict with existing projects," he added.

In an annual report published by the United Nations Conference on Trade and Development (UNCTAD) Russia's foreign direct investment has grown by 22 per cent over a one year period, reaching $53bn in 2011, following encouragement from the repayment of investment, primarily in the energy sector. One of the examples is a joint venture between Rosneft and ExxonMobil in developing the Arctic shelf.

Russia now ranks 7th in the world for foreign direct investment

"AAR and BP always wanted different things, which lie at the heart of the problem. AAR wanted to explore overseas but that conflicted with a lot of BPs interests and assets," says Latto. "The crux is that Russia is the largest producer of oil and depends on oil revenue to prop up its economy, so it needs to make sure it attracts western investment and western oil majors to develop and produce oil across many lucrative oil field sectors."

"The argument can go either way, as the general backdrop for Russia shows the country in a Catch-22 situation. Russia relies on tax revenue from oil production for the bulk of its state spending. If it cuts its high tax rate, then it will stimulate the sector and production will go up. However if it keeps taxes high then oil output will suffer," he adds.

Changes to BP Management

As BP looks to shed its lucrative stake in TNK-BP, analysts say that this could be a moment that will prompt a major change in BP management.

"One of the key challenges BP faces is its own management. I am not comfortable that senior management is up to scratch with manoeuvring the company into better times," says Graham-Wood. "The next few weeks and months will be a key time for the group. Even if you take the Gulf of Mexico oil spill out of the equation, BP management has had a series of major errors in judgement and management that have hurt the company. They failed to secure some lucrative deals, including a major one in Argentina."

"Unlike somewhere like Barclays, BP cannot shift all its management in one go. But they should at least change Chairman because the remarkable and breath taking incompetence is hurting the company. Andrew Shilsten would be a good and strong replacement and I suspect that if he decides to develop more gravitas in the company, the group would be willing to consider him as chairman," he adds.

Shilsten is noted as a key favourite to take over as chairman because of his years of experience and success in finance and the field of energy and currently serves on BP's board as non-executive director. Shilston trained as a chartered accountant before joining BP as a management accountant and subsequently joined Abbott Laboratories before moving to Enterprise Oil in 1984 at the time of flotation.

In 1989 he became treasurer of Enterprise Oil and was appointed finance director in 1993. After the sale of Enterprise Oil to Shell in 2002, in 2003 he became finance director of Rolls-Royce until his retirement on 31 December 2011. Shilston also served as a non-executive director on the boards of AEA Technology and Cairn Energy where he chaired the remuneration and audit committees.

Dudley and other current executives are still not in favour with key shareholders, after they blasted the Chairman and other senior management for their pay awards, despite dampened dividend returns.

Earlier this year, votes casted before the 11 April meeting showed 11 per cent came out against BP's remuneration report.