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Home News Russia’s Rosneft looks to future after BP

Russia’s Rosneft looks to future after BP

Published on 10/06/2011

Russia's state oil giant Rosneft charted a global future without BP on Friday after the British firm pronounced their much-maligned alliance effectively dead.

“Rosneft will be placing a special emphasis on creating partnerships with international energy industry leaders,” chief executive Eduard Khudainatov told shareholders at its annual meeting.

“Today, with the company expanding to new horizons, we are giving strategic cooperation with international clients much greater weight,” the Rosneft chief said.

Rosneft, which was built up out of the ruins of the defunct Yukos giant of detained oligarch Mikhail Khodorkovsky, controls of about one-fifth of Russia’s oil production and some of the world’s most coveted northern sea reserves.

The Russian company had pinned its future on the BP agreement — a $16 billion (11-billion-euro) share swap which would also have made BP the first Western oil major to tap the vast fields hidden in the Arctic.

A source close to Rosneft said the company thought it had struck a “visionary” partnership that would have seen the two giants lord over nearly half of the world’s oil production within the next 20 years.

Rosneft needs Western technology to tap the fields and foreign experience to reliably deliver its wealth to distant clients.

The deal collapsed in May over protests by BP’s Russian partners in its local joint venture and the subsequent failure of efforts to buy out the unhappy shareholders.

BP chief Bob Dudley was quoted by the Wall Street Journal on Wednesday as saying the deal was effectively dead and it was time for his firm to be “moving on”.

“We are also moving on. Dudley himself said the deal was dead,” the Rosneft source told AFP. “We are opening our doors to everyone. We are saying welcome.”

Rosneft has already held talks with the visiting head of the Anglo-Dutch firm Royal Dutch Shell and is fielding other offers.

The source said Rosneft was also conducting “ongoing and detailed negotiations” with ExxonMobil of the United States.

But Shell has already said it was not discussing a cross-holding and the Rosneft source said ExxonMobil was also unwilling to exchange shares with the Kremlin-controlled firm.

“They (ExxonMobil) are not ready for it,” the Rosneft source said of a share swap.

BP had reportedly agreed to swap shares after coming pressure from the Russian government and the Rosneft source said a cross-holding was vital to any new deal.

“We see it as a kind of security pledge — a sign that we trust each other and are working toward the same goals,” said the source.

Russia’s energy tsar and outgoing Rosneft chairman Igor Sechin meanwhile said BP would have to “improve the effectiveness of its offers” to deal with Rosneft again.

The company’s shareholder meeting showed impressive current production data whose sustainability depended heavily on Arctic oil eventually reaching the market.

Khudainatov said Rosneft’s current reserves of 3.1 billion tonnes of oil equivalent made it into the world’s largest publicly traded company and would last another 21 years.

But one analyst told the conference the firm could only boost production by a relatively meager 40 percent over the next two decades with its current range of exploitable fields.

Those prospects are making Arctic development even more vital because Rosneft faces the theoretical risk of losing the licenses under existing legal production obligations.

The source close to Rosneft said the company’s current development of the Arctic was going “on schedule” while Khudainatov had to field a question from one shareholder frustrated with the idea of a Western tie-up.

“We live in a global world and Rosneft is destined on becoming a large and strategically developing company,” Khudainatov said.