BP strikes deal with Russian oil company
Updated 8:30 p.m.
BP struck a deal Friday that will give Russia's largest oil firm, Rosneft, a 5 percent stake in BP and will give the London-based oil giant access to exploration prospects in Russia that BP believes to be among the most promising in the world.
The deal, in which BP will also obtain 9.1 percent of Rosneft's shares, deepens BP's reliance on Russia for not only for current revenues but for future prospects.
BP was given licenses to explore three new blocks in the South Kara Sea, on Russia's Arctic continental shelf. The company called it an area "roughly equivalent in size and prospectivity to the UK North Sea."
"That means BP thinks the South Kara Sea may have as much as 50 billion barrels," said Clifford Gaddy, a Brookings Institution expert on Russia energy issues. "If so, it might ultimately yield 5 million barrels a day for nearly 30 years. That's an incredible amount of oil. And a lot of dollars to Russia for a few decades to come."
For most of the past few months, BP has been busy peeling off assets to gird itself for further payments resulting from the massive oil spill in the Gulf of Mexico last year.
The agreement with Rosneft, by contrast, "provides a high-profile endorsement of BP from the world's largest oil-producing country," said Pavel Molchanov, oil analyst at Raymond James. The deal was approved by the Kremlin ,and deputy prime minister Igor Sechin went to London to bless the deal Friday night.
The swap of shares between the companies did not involve any cash. The 5 percent stake of BP would be worth about $7.8 billion. "The share swap component of the alliance creates strategic alignment to pursue joint projects and demonstrates mutual confidence in the growth potential of both companies," the companies said in a joint release.
"While we don't think the agreement is directly related to the Gulf oil spill, it certainly provides a 'stamp of approval' that should help rebuild BP's reputation in the industry," Molchanov said.
BP already has a huge stake in Russia, mostly through its half of the TNK-BP joint venture. According to BP, Russia accounts for 36 percent of BP's current world oil production.
It also has previous ties to Rosneft. In 2006, BP bought $1 billion of shares in Rosneft's initial public offering. It also has a joint refining venture with Rosneft in Germany.
The initial public offering in 2006 was controversial. The Rosneft IPO had been widely cast as a test of international opinion on then Russian President Vladimir Putin and his government's moves to renationalize much of the oil industry and woo foreigners into taking minority stakes.
About two-thirds of Rosneft's oil production was bought indirectly in 2004 from OAO Yukos, which had been forced into bankruptcy by tax evasion charges. Yukos shareholders sought to block the Rosneft stock sale. The imprisoned former Yukos chairman Mikhail Khordorkovsky last month had his jail term extended by six years. A political foe of Putin, he was sentenced for tax charges.
| January 14, 2011; 8:30 PM ET
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