BP is frozen out in Russia over Rosneft deal

published 20 May 2011

BP's proposed $16bn alliance and share swap with Russian giant Rosneft fell apart this week. The deal had been opposed and blocked by BP's oligarch partners in its existing Russian joint venture, TNK-BP. BP and Rosneft attempted to buy them out, but failed to secure an agreement before the deadline for completing the BP-Rosneft share swap expired this week. BP still hopes to be able to do a deal. Rosneft has said it is willing to keep talking.

What the commentators said

This is "deeply embarrassing" for chief executive Robert Dudley, said Richard Fletcher in The Daily Telegraph. The deal to help Rosneft tap Arctic oil reserves of the size of the North Sea was supposed to "restore BP's global prominence in deepwater drilling" after the Gulf of Mexico fiasco. BP had an agreement with TNK-BP to work exclusively with it in Russia. But "Dudley gambled that with the backing of the Russian government", he could get the oligarchs "to fall into line". Dudley "should have known better", added Nils Pratley in The Guardian. He fought a bitter battle with his Russian partners just three years ago. He shouldn't have been surprised that they would fight to safeguard their right of first refusal over Russian adventures.

Still, all is not lost. Rosneft may have been irritated by BP's failure to close the deal but it still needs help exploring the Arctic, noted David Prosser in The Independent. And BP is still the only potential partner "offering long-term faith and support in the form of a share swap". What's more, the parties were close to a buyout deal this week. The oligarchs would apparently be prepared to sell their 50% to Rosneft and BP for just over $30bn. But that kind of price might be stretching too far to salvage a deal, said Fletcher. BP's balance sheet is "already strained". And its exposure to Russia, where as we have seen "nothing is straightforward", would "dramatically" increase.

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