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Posted at 8:30 PM ET, 01/14/2011

BP strikes deal with Russian oil company

By Steven Mufson

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.

By Steven Mufson  | January 14, 2011; 8:30 PM ET
 
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Comments

It will be interesting to see if there are any oil or natural gas reserves worth pursuing. The United States Geological Survey recently downgraded the oil potential on the National Petroleum Reserve in Alaska by over 90 percent and the natural gas potential by 14 percent as shown in this article:

http://viableopposition.blogspot.com/2011/01/national-petroleum-reserve-in-alaska.html

It is interesting to put the size of the estimated oil reserves of nearly 900 million barrels into perspective. At projected United States daily consumption of 19.4 million BOPD, the estimated reserves will last all of 46 days.

Posted by: Baywoodfarm | January 14, 2011 6:12 PM | Report abuse

To Baywoodfarm:
That would be a bleak energy supply projection .... if If I burned anything that didn't come from methane producing digesters. If more people used the techniques pioneered by Ram Bux Singh, that would be some pretty rough news for the likes of BP and Shell. They are just not far enough along in their program to subsume all energy systems on the planet.
As it is, people will keep buying their current noxious harvest no matter how expensive, dangerous or damaging the extraction process is. Sort of a 'fracked' up situation, one might say.

Posted by: jbksss | January 14, 2011 7:34 PM | Report abuse

No matter what oil pollutes!

That is the bottom line. BP could lose their behind while Russia takes in some quick short term profits.

It's time to cut back on oil consumption!

Posted by: rheckler2002 | January 14, 2011 10:24 PM | Report abuse

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Posted by: zhengee01 | January 14, 2011 10:52 PM | Report abuse

One should not hold one's breath on the belief that the supply of petroleum will be running out any time soon.
The planet is awash in this mineral, and despite peak oil prognosticators and other doomsayers to the contrary, there's no real reason to believe that there won't continue to be plenty of the stuff around for the foreseeable future and way beyond.
Further, given that the value of oil and gold remain relatively constant to each other, oil is as good a hedge against inflation as is gold -- and oil has the benefit of being good for more than just a doorstop.

Posted by: GMHeller | January 15, 2011 3:11 AM | Report abuse

The other half of this deal, yet to be revealed, is that BP will sell its gas stations in the USA to the Russians. Well, America is the land of the free and free enterprise, surely that is business for America's business is business, one of your President's said so.

Oh, Mr Obama what will you do then? The Russians of course will undercut the America oil companies prices. Mr Obama you will shouldn't have been so nasty to BP they only rented the oil rig. It's Haliburton you should go after.

Posted by: Anonymous | January 15, 2011 4:07 AM | Report abuse

Interesting that Republicans get all excited about "Government Motors," because the USG provided bancruptcy financing to GM at a time that the private hedge funds were crippled by the financial crisis, but the Kremlin physically signs an agreement to own one of the largest gas retailers in the US and there is not a peep out of the Russian free enterprisers! Just shows you how truly confused the right is in this country.

Posted by: Anonymous | January 15, 2011 8:12 AM | Report abuse

I'm a BP stockholder disturbed that BP is buying basically part of a company stolen by the Putin government. That's the oil business for you. Dirty.

Posted by: Anonymous | January 15, 2011 9:57 AM | Report abuse

I would love to been a fly on the Oval office ceiling when Obama was told of this deal!!

Posted by: Pompeymatt | January 15, 2011 10:48 AM | Report abuse

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