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Russia: The New Energy Empire

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The Russians are becoming major exporters, and Europe find itself in a tenuous strategic alliance.

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Editor's note: The following is an excerpt from a longer article that appears on MoneyShow.

Exxon Mobil (NYSE:XOM) is no longer the world's number-one oil producer. As of last week, that title belongs to Rosneft (PINK:RNFTF), Russia's state-controlled oil company.

Rosneft is buying TNK-BP, which is a vertically integrated oil company co-owned by British oil firm BP (NYSE:BP) and a group of Russian billionaires known as AAR. One of the Top Ten privately owned oil producers in the world, in 2010 TNK-BP churned out 1.74 million barrels of oil equivalent per day from its assets in Russia and Ukraine, and processed almost half that amount through its refineries.

TNK-BP has been an economic dream, producing many billions in dividend payments for its owners-but it has been a relationship nightmare. The partners have fought repeatedly. In 2008 Russian authorities arrested two British TNK-BP managers amid a dispute over strategy that forced then-CEO Bob Dudley (who now heads BP) to flee Russia-and that is just one of many scandals.

The writing has been on the wall for TNK-BP since this time last year, when one of the AAR billionaires quit his role as CEO of the venture and declared that the relationship with BP had run its course. Since then, speculation has raged over who might buy into the highly profitable venture.

Now we know: Rosneft is buying the whole thing, in a two-part deal. In the first part, Rosneft is acquiring BP's 50% stake of the joint venture in exchange for cash and Rosneft stock worth $27 billion. The deal will give BP a 19.75% stake in Rosneft. In stage two, AAR would get $28 billion in cash for its half, though this deal is not yet finalized. To put the $56 million TNK-BP deal in perspective, it will be the largest in the industry since Exxon bought Mobil in 1999. In consumer terms, it is as if Nike (NYSE:NKE), worth $34 billion, merged with Kraft (NASDAQ:KRFT) worth $27 billion.
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