BP on verge of missing Rosneft deadline

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BP's hopes of tapping Russia's Arctic oil reserves faded on Monday amid reports that its last-gasp bid to salvage the troubled deal would not be completed by the midnight deadline.

The $16 billion "strategic alliance" between BP and state-held Rosneft -- Russia's largest and most powerful oil company -- had been meant to reverse the company's flagging fortunes after the costly Gulf of Mexico oil spill of 2010.

The prospects of being the first through the door to the vast Kara Sea oil fields provided BP and its under-fire chief Bob Dudley with the hope of reviving a company whose stock had been underperforming the market for months.

But Prime Minister Vladimir Putin's personal blessing of the arrangement in January did not prevent the Russian partners in the British giant's TNK-BP joint venture from successfully blocking the deal in court.

The four Russian billionaires argued that TNK-BP had the right to bid on the Rosneft deal first and have since refused BP's attempts to buy out their half of the joint venture to get the deal done.

BP had previously offered $27 billion for the stake and by Monday evening had raised that offer. But both Russian and Western reports said the billionaires were still not impressed with the terms.

The Wall Street Journal quoted one source close to BP as saying that talks could now "go quiet for days or weeks or months."

But the same source added that they "could easily surface again in some form in the future."

The precise nature of the negotiations remained clouded in secrecy amid reports of various attempts by both BP and Rosneft to squeeze the Russian partners out of TNK-BP and then split up the company among themselves.

Russian news reports said BP was willing to offer shares and cash in an arrangement that would see it holding 75 percent of the joint venture and Rosneft -- which would also pitch in -- left with the remaining quarter.

The two companies were then reportedly willing to swap their stakes under an arrangement that left Rosneft in control of TNK-BP and an even more dominant force on the Russian oil market.

But an unnamed source told Interfax that "impossible" conditions from the billionaires were spoiling the talks.

Some analysts note that BP would be mistaken to pay its local partners' asking price -- reported at around $35 billion -- while at the same time giving up five percent of its shares to Rosneft for a 9.5 stake in the Russian firm.

Analyst have criticised Rosneft's capital-intensive development strategy and questioned why BP was willing to link arms with a company managed by Russian bureaucrats.

But BP's chief Dudley has countered that he would be bringing enormous expertise to a company with some of the world's most important reserves and thus developing a global force with potential unseen among its rivals.

The damage failure to get the deal done would do to Putin's and Rosneft's image has also prompted some analysts to speculate that a final agreement may still be reached in the weeks or months to come.

"I think that after some more delays this deal will get done because it is advantageous to the two companies and it is politically advantageous to Russia," Mikhail Molodov of Maxwell Capital Management told the RBC business channel.

"But this is a question of the medium-term perspective," Molodov added.

© 2011 AFP

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