Rosneft shatters BP's Arctic dream

17th May 2011, Comments 0 comments

Rosneft on Tuesday shattered BP's hopes of exploiting Russian Arctic oil by pulling out of a planned joint venture with the British giant after losing patience with protracted negotiations.

A Rosneft source told AFP that the state-controlled Russian oil giant was now looking for a new Western partner following the failure of the two sides to resolve a row concerning BP's Russian joint venture before Monday's deadline.

The deal -- championed by Prime Minister Vladimir Putin -- was hailed as a breakthrough in Russian business ties with the West and a chance for BP to restore its reputation after the Gulf of Mexico oil spill.

But it appears neither side expected objections from a group of Russian oligarchs who own half of BP's existing Russian joint venture TNK-BP. They argued that the deal breached their shareholder pact and blocked it in court.

BP and Rosneft sought to buy out the billionaires -- known collectively as AAR -- to end the crisis but the Russian firm tired of the conditions and price demands they set.

The Rosneft source said it was now ready to offer the difficult Kara Sea project to another experienced Western firm.

"Various partners have sent us their proposals about entering the Arctic shelf project," the Rosneft official told AFP on condition of anonymity.

"We had not reviewed them until now since we still had a deal with BP. But as of today, the company intends to carefully study these proposals," the source said.

Rosneft -- forged into Russia's state champion from the ruins of the jailed Mikhail Khodorkovsky's Yukos oil firm -- has already been approached by the US multinational ExxonMobil and the Anglo-Dutch firm Royal Dutch Shell.

Analysts said California-based Chevron may also be in the running.

Rosneft finds itself sitting on some of the world's largest unexplored reserves while at the same lacking the expertise or equipment needed to tap the wealth and turn itself into a dominant international force.

BP for its part had been hoping to use the Russian tie-up to end years of its shares' underperformance and win back the support of shareholders who had turned an April meeting into a raucous show of their mounting frustrations.

But the Russian partners at TNK-BP became furious when the Rosneft agreement was struck without their agreement and successfully argued in court that they had a right of first refusal on any deal.

BP had spent weeks trying to buy the local billionaires out of TNK-BP in hopes of completing the deal.

The Rosneft source said the Russian company was also willing to contribute cash to the deal and that the two sides had by the end upped BP's initial $27 billion offer by more than $5 billion.

The Russian partners "declined the offers even though there was a premium placed on the price," the Rosneft source said.

The deal's collapse appeared seemed to catch both the British firm and its Russian partners off guard.

"We plan to continue discussions about potential collaboration among BP, Rosneft and AAR," AAR shareholder Mikhail Fridman said in a statement issued moments after Rosneft sources said the company was now looking for new partners.

Yet the news sent BP shares up one percent in London on investor relief that it would no longer be paying a premium on a deal whose immediate rewards seemed uncertain and depended in large part on the whims of the Russian state.

Analysts said BP shareholder may be also be cheered by a vow from the billionaires to "intensify their efforts to ensure TNK-BP's continued success" -- a comment aimed at dispelling concern of bad blood between the British and Russian partners.

A spokesman for Putin also dismissed suggestions that the historic agreement's demise might have further political or economic repercussions.

"This will not impair Russia's investment climate," spokesman Dmitry Peskov told Interfax.

© 2011 AFP

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