Rosneft and BP create a strategic global alliance

Rosneft, the Russian oil giant, and BP have reached significant agreements on jointly operating and developing the Russian Arctic continental shelf.

Rosneft will receive 5% of voting shares in BP in exchange for roughly 9.5% of the state-owned Russian oil major, the companies said in a joint press release late on Friday.

“The aggregate value of the shares in BP to be issued to Rosneft is approximately $7.8bn (as at close of trading in London on 14 January 2011)” – the companies explained in the document.

Technological co-operation will be an important part of the companies’ joint operations, with an Arctic technology center to be set up in Russia. The latter will work with the leading Russian and international research institutes and set up the new ones to track the efficiency and safety of hydrocarbon resources extraction in the areas of KaraSea, as well as in the whole Arctic region.

Still, the transaction needs to go through certain listing approvals and the completion of certain administrative requirements and is expected to be completed within a few weeks, the press release stipulates.

However, Konstanin Simonov, the head of the National Energy Security Fund, says that the asset swap alone makes this a hugely significant deal.

“In this paper we see very serious ideas of the exchange of assets. I hope that BP will be an investor in our shelf project, because with this serious investment we need not only investment – we need serious technology. And BP is one of the leaders, if we are speaking about shelf production. And of course after this story in the Gulf of Mexico there are a lot of critics about BP, but we must remember that the depth of the well was more than 1,500 meters, so we need all these techniques. That’s why I think there will be some progress. But even if there is no real launching of projects in our shelf, the exchange of assets is already a serious deal,” Simonov says.

Both parties to this landmark deal were upbeat about it, saying that Russian assets combined with BP’s skills will make the alliance beneficial both mutually and globally.

Eduard Khudainatov, Rosneft’s president, underlined the great global scale of the agreement and the chance to possess practices from the experienced market player.

“I am pleased that in just a few months we’ve significantly moved forward in implementing Russia’s offshore strategy. In its operations, our future joint venture will utilize the experience and expertise of BP, one of the leaders in the global oil and gas industry. 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.”

BP’s chief executive, Bob Dudley, was also happy to join the Russian giant and get the access to one of the world’s prospective oil rich areas.

“This unique agreement underlines our long-term, strategic and deepening links with the world’s largest hydrocarbon-producing nation. We are very pleased to be joining Russia’s leading oil company to jointly explore some of the most promising parts of the Russian Arctic, one of the world’s last remaining unexplored basins. Underpinning this alliance is a new type of relationship based on a significant cross-shareholding, and bringing together technology,exploration and safe and responsible field development skills. We are very pleased to welcome Rosneft as a strategic partner and major shareholder in the BP Group,” Dudley said.

According to Russian PM Vladimir Putin, speaking at a meeting with BP CEO in Novo–Ogaryovo on Friday, the resources of the fields to be developed jointly by Rosneft and BP have been estimated at 5 billion tonnes of oil and 10 trillion cubic meters of natural gas.

"These are only resources, but we understand that these are serious figures that have yet to be confirmed, but they are quite realistic, and the resources can turn into deposits," said the prime minister.

However, Putin also mentioned BP's problems in the Gulf of Mexico, adding that all offshore projects with BP will be closely analyzed.

"We understand the risks. A special research center will be set up to study shelf projects,” he said.

Russian analysts are mostly positive about the move and forecast a positive reaction in the stock market, with Oleg Maximov, Valery Nesterov and Alex Fak from Troika Dialog, adding that the deal was also important for the sector as a whole.

“Given that the share transactions provide no arbitrage opportunity and the first oil from the KaraSea blocks is years if not decades away, the deal should have a more positive impact on sentiment than on anything else. Indeed, while at least two global oil and gas companies were actively running for the exits last year and dissolving long-standing relationships with the Russian majors, we find it encouraging for the sector that BP is becoming more entrenched in the country with its 50% stake in TNK-BP and now an almost 11% stake in the largest Russian oil firm,” the analysts maintain.”