Kremlin moves to save Arctic oil deal with BP

Kremlin moves to save Arctic oil deal with BP

Kremlin-controlled oil group Rosneft insists it is pressing ahead with its controversial alliance with BP, after the venture was blocked by a Stockholm court.

Igor Sechin, Rosneft’s chairman and Russia’s deputy prime minister, declared he intended to proceed with the alliance and claimed the court had merely extended an existing temporary injunction on the project by a fortnight. He also threatened to sue for any losses that Rosneft incurred from the court action taken by BP’s Russian oligarch partners AAR.

AAR sought to block the deal between BP and Rosneft that involved the companies swapping $16bn (£10bn) of shares and forming a joint venture to explore the Arctic for oil. AAR, which owns half of TNK-BP, BP’s existing joint venture in Russia, claimed the Rosneft deal breached an agreement under which the UK company is required to offer any business in Russia to TNK-BP first. The tribunal ruled on Thursday that the temporary high court injunction preventing the deal from being consummated should remain in place.

“The court didn’t block [the deal], it extended the injunction until 7 April . We must await the court’s verdict,” Sechin told reporters, putting him at odds with the other parties involved who believe the court’s verdict this week was final. “In any case, we want to follow the plan. We are satisfied with BP as a partner.”

Sechin also issued his warning that Rosneft could seek compensation for losses relating to the delay of the deal: “Rosneft is considering who is responsible for the collapse of this agreement. Certain losses are already arising. The partners know about this. The company will react appropriately.”

BP pledged to salvage what it could from its proposed alliance with Rosneft, saying it would now seek permission to swap its shares with Rosneft on the basis that the proposed Russian joint venture was scrapped.

Stan Polovets, AAR’s chief executive, opposed slimming down the agreement between BP and Rosneft to a straightforward share swap, saying the ruling “was perfectly clear in that BP is precluded from completing any element of its strategic transaction with Rosneft, including the exchange of shares”. He said the joint venture attempt “has harmed BP’s reputation in Russia”.

In addition to pressing ahead with its attempt to complete the share swap, BP is expected to seek talks with Rosneft and TNK-BP to see if the three parties can come up with a mutually acceptable agreement that would allow TNK-BP to participate in the joint venture.

The setback has put the spotlight on BP chief executive Bob Dudley, who announced the proposed alliance at a press conference in January, shortly after taking up the reins. He presented the venture as a transformational deal that would help put BP on the path of recovery following the Deepwater Horizon oil spill.

Arbuthnot Securities analyst Dougie Youngson said: “Given his [Dudley’s] past relationship in Russia, how difficult it has been, he should have been a bit more appreciative of how tricky it can be operating in Russia.”

Dudley has intimate knowledge of the workings of TNK-BP and the Russian oil industry at large, having previously headed BNP-TK until he was forced out of Russia after falling out with the oligarchs who co-founded the business.

Artem Konchin, an oil analyst at UniCredit in Moscow, added: “BP took a dive, not because of diminished prospects for growth, but because of what people perceived to be a miscalculation.”

Separately, the decision to block the deal was welcomed on environmental grounds.

James Marriott, of oil industry watchdog Platform, said: “It’s good that the arbitration ruling has delayed BP’s dangerous Arctic drilling. Despite the motivation for the injunction, the practical outcome is that it protects the Arctic from risky efforts to explore for oil.

“The British government should now take the responsible position of promoting an Arctic moratorium, as Norway has done.”

Shares in BP fell by more than 1% in early morning trading today, before rising on hopes that some kind of deal could still be agreed, to end 2.65p higher at 483.55p.

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