BP, Russia in Arctic oil deal

16 January 2011 | 09:32 | Source: BBC

LONDON -- British Petroleum (BP) has signed a joint venture with Russian energy firm Rosneft to exploit potentially huge deposits of oil and gas in Russia's Arctic shelf. The "strategic global alliance" will see the firms exchange expertise in exploring the region. As part of the deal Rosneft will take five percent of BP's shares in exchange for approximately 9.5 percent of Rosneft's shares. It is BP's first deal since the Deepwater Horizon spill last year, which cost it billions. The BP shares stake is worth just under USD 8bn. "BP executives see this as the first piece of good news since that disastrous oil spill in the Gulf of Mexico last April," said the BBC's business editor Robert Peston. But he said the deal was a controversial one, with Russia not seen as an entirely transparent society or as a stable place to do business. "This unique agreement underlines our long-term, strategic and deepening links with the world's largest hydrocarbon-producing nation," said BP's CEO Bob Dudley. He said the "historic" deal would "create value, deliver growth, and meet the world's demand for energy". Dudley said the agreement would meet the needs of consumers, shareholders and governments. The firms will explore in three areas - known as EPNZ 1,2,3 - on the Russian Arctic continental shelf. The area covers 125,000 square kilometers in an area of the South Kara Sea. "Our future joint venture will utilize the experience and expertise of BP, one of the leaders in the global oil and gas industry," said Rosneft's President Eduard Khudainatov. "This project is unique in its complexity and scale both for Russia and the global oil and gas industry. We see it as the next step in developing our relations with BP." Referring to the Deepwater Horizon blast Dudley said that the firm had "learned many lessons over the past year". He also said the Russian deal had not been precipitated by the backlash it had experienced in the U.S. because of the Gulf of Mexico spill. Since the rig disaster in the U.S. Gulf of Mexico BP has been disposing of assets. Dudley is the former chief executive of Russian joint venture TNK-BP, and was forced out of the country in 2008 after falling out with other shareholders. But he said he was pleased to now be working with Rosneft in "one of the world's last remaining unexplored basins". "We are today building a relationship between BP and Rosneft that has been forged over 12 years but going far beyond anything that has gone before," he said. "We are creating an entirely new strategic alliance between what I know are two great companies."  Joint research BP and Rosneft have also agreed to set-up an Arctic technology centre in Russia which will work with Russian and international research institutes to develop technologies for the extraction of hydrocarbon resources from the Arctic shelf. UK Energy Secretary Chris Huhne hailed the agreement as a groundbreaking development. "From what we know, it sounds like it's potentially good for BP," said Phil Weiss, analyst at New York equities firm Argus Research. "BP gets access to resources, Rosneft gets access to expertise and knowledge." However in the U.S. Congressman Edward Markey, who is leading Democrat on the House Natural Resources Committee, called for a review of the deal by U.S. regulators.  Return to profit BP had a terrible 2010 with the Gulf of Mexico spill, which is going to cost them at least USD 40bn. But in November BP announced it was back in profit in the three months to September after last quarter’s record loss. The firm said its replacement cost profit for the period was USD 1.85bn, as against the USD 17bn loss recorded from April to June. The previous loss reflected the massive costs of the Gulf of Mexico oil spill crisis.