BP PLC has agreed to cede its share of an Arctic oil exploration pact with OAO Rosneft to its half-owned affiliate TNK-BP in a compromise with Russian partners who have fought for a slice of the action.
A parallel $16-billion (U.S.) share swap deal between the British oil company and Russia's state-controlled oil group Rosneft can now go ahead, the TNK-BP partners said in a joint statement, citing a decision by an arbitration panel.
Both moves are subject to the agreement of Rosneft itself. Rosneft declined to comment on the prospect of changing partners, but Russia's deputy prime minister and Rosneft board member Igor Sechin has previously said Rosneft does not want TNK-BP to be involved in the Arctic deal because it has no deepwater offshore expertise.
The owners of the other half of TNK-BP expressed their satisfaction at having muscled in on a deal that was BP's first major strategic move after last year's U.S. Gulf oil spill disaster shattered its reputation and hammered its share price.
"We welcome today's developments," said Stan Polovets, chief executive of Alfa-Access-Renova (AAR), the consortium that represents the quartet of billionaire shareholders.
"Today's agreement provides a good way forward for achieving these priorities and opens the way to bring BP's valuable expertise and technology to offshore exploration in Russia."
TNK-BP has no Arctic offshore exploration expertise of its own, but as Russia's third biggest oil company with maturing oil fields its Russian owners do not want it to miss out on the big new Arctic prospects.
Some analysts were unconvinced of the workability of the plan, even if Rosneft agrees to it.
"The experience of exploring in these areas is in BP, not in TNK-BP. They could get around that by seconding people into TNK-BP, but it kind of dilutes BP's upside not only in the sense you only get half of whatever the exploration is, but also these are valuable people who could be used elsewhere," said one analyst who did not want to be named.
"It's all rather unsatisfactory. If BP go ahead with the same Rosneft share-swap you've got to say, maybe what's the point of doing all of that if you're only going to get half of what they originally thought." The legal wrangle dates back to the time the BP-Rosneft deal was signed in January, and has been holding up another key part of the plan in which BP would exchange 5 per cent of its own equity for a 10 per cent stake in Rosneft.
AAR had objected to the BP-Rosneft pact, saying that BP was obliged to pursue all its Russian ventures through TNK-BP.
Following legal action BP has said it has offered to buy out its TNK-BP partners to try to end the dispute, and sources close to AAR said in April that BP had offered $27-billion for the 50 per cent of TNK-BP held by billionaires Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik.