BP and Rosneft arrange joint exploration deal for the Russian arctic in a cross-shareholding agreement, Focus Reports
Release Date: 2011-01-20
In a pioneering deal for the international oil & gas industry, British oil conglomerate BP signed a share-swapping agreement last Friday with Russia’s state-controlled Rosneft, that will serve as a framework for exploration and development of one of oil’s last uncultivated frontiers—the Russian arctic basin. Under the conditions of the contract, Rosneft will receive a 5% stake in BP, while BP will pick up a 9.5% stake in Rosneft, complementing the 1.5% share that BP already held in the Russian company. Each set of shares is valued at approximately $8bn.
The contract was signed at BP’s London headquarters by BP CEO Bob Dudley and Rosneft president Eduard Khudainatov, as members of government looked on in ceremony. Dudley remarked that the occasion denotes the first time that an international oil major and a national oil company have entered into a considerable cross-shareholding arrangement. Dudley acclaimed the deal as "a new template for how business can be done in the industry." Igor Sechin, Russia’s deputy prime minister who was present at the signing, called it “key, even historic.”
The strategic decision is potentially a very lucrative one for BP, which has been reeling in recent months after the extremely costly clean-up and damages payout of the notorious Gulf of Mexico oil spill, coupled with the intrinsic costs of lost business and unfavorable standing. While Dudley claims that the U.S. remains a “core heartland for BP,” the repercussions of the Gulf disaster have made it difficult for the company to fashion its way forward in the West. The Rosneft agreement further establishes BP in Russia—Rosneft now becomes BP’s largest single stakeholder—and could eventually generate great revenues, if optimistic analyst appraisals of the untapped hydrocarbon basins in the Russian arctic prove accurate. The contract specifies an initial joint exploration of three blocks, located in the South Kara Sea.
BP has been contemplating entrance into the arctic for quite some time. Dudley noted that talks with Rosneft regarding a joint exploration pact have been in process since 2005, and the notion of cross-shareholding was first raised last fall in Moscow, in a meeting between the heads of the two giants, with deputy minister Sechin in attendance. Sechin is said to have put forward the idea.
An interview last May with TNK-BP’s head executive David Peattie, conducted by Focus Reports, foreshadowed the then-impending deal that was formalized on Friday. Peattie’s comments showed the BP group’s long-enduring interest in the Russian arctic, and its aspirations to find a point of entry via Russian partnership: “BP has been around for 100 years, and throughout its history has a record of pioneering new regions. When the company looks at a new province such as the Arctic, which seems very important in terms of geography, and oil and gas prospectivity, it is natural that BP should want to play a part in its development. The company is very capable of it: it has the technology, skills and experience. It is up to Russia to decide when, how, and which partners they will choose. We stand ready to bring what we can over the next generation.”
The sought-after agreement has now been put into place.
| Type: | NORMAL |
| Company: | Focus Reports |
| Country: | Switzerland |