Skip to main content
Access every election story that matters
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Access every election story that matters
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
// //

Rosneft will become the world's biggest listed crude producer following its $55-billion (U.S.) swoop on Russia's third-biggest oil company. Igor Sechin's new behemoth also expects to generate $3-billion to $5-billion of cost synergies from scooping up its smaller rival. If Rosneft can apply TNK-BP's oilfield know-how to improve production at its own fields, the cost and revenue benefits of the Russian oil shake-up could indeed climb high.

TNK-BP, the 50-50 joint venture between U.K. oil major BP and a gaggle of Russian-born billionaires, proved adept at coaxing oil out of the ground. It also took care of the roubles. Direct comparisons are tricky, but Rosneft spent almost $11 for every barrel of oil it pumped between 2009 and 2011. Equipped with industry best-practices imported from BP, TNK-BP's per-barrel outlay was less than half that.

Oil and gas account for about 20 per cent of Russian GDP, according to the International Energy Agency, and gives the government about half its revenues. But after a decade-long boom that saw crude production rise from less than 7 million barrels per day in 2001 to more than 10 million in 2011, Russia's output is expected to rise just 2 per cent in the two years to 2013, according to PFC Energy, a consultancy. Much of Russia's crude today comes from mature fields in long-term decline. Bernstein Research estimates onshore production will shrink an average of 3.5 per cent per year, despite billions of dollars of investment.

Story continues below advertisement

Rosneft, which is taking on huge debts to fund the deal, must hope that TNK-BP effectiveness, and efficiency, is infectious. Scale could bring economies, too. New Rosneft will control 40 per cent of national output. But absorbing a smaller, dynamic producer into a lumbering state-dominated company may just end up stifling competition and innovation. That must be a risk – not least for BP, which will receive a 19 per cent stake in Rosneft.

It may be naïve to assume that Kremlin-dominated Rosneft will drive the value-for-money ethic expected of a Western corporate, even with two BP representatives on its nine-person board. The loss of an efficient competitor will leave Rosneft with one fewer yardstick to measure its performance by. In itself, that may lead its performance downhill.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies