Pioneering tie-up for BP and Russia
Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - Now, with the share swap and joint venture plans announced on Friday night, the two companies have formed a pioneering alliance between national and international oil, and are looking at some very attractive exploration prospects in the icy waters off Russia’s northern coastline. It is also a personal success for Bob Dudley – the first in his tenure as chief executive of the UK oil group. He was last seen in Russia as the embattled chief executive of TNK-BP, the joint venture 50 per cent owned by BP, fleeing the country after a bitter dispute with the venture’s Russian shareholders. Cheap Nike Shoes Today, relations with BP’s Russian partners seem amicable, and Mr Dudley was being praised by Vladimir Putin, Russia’s prime minister, for BP’s “professionalism” and “very serious attitude to business”. Mr Dudley, for his part, said the “alliance is based on mutual advantage and the recognition of great strengths”. He added: “It defines a new template for how business can be done in this industry.” Yet for all the warm words, the deal does not wipe away the problems the two sides face. BP and Russia have embraced each other like two drunks leaning together for support. The Gulf of Mexico spill has created two strategic problems for BP, dealing a blow both to its hopes of making the US its principal source of growth, and to its financial resources. The US is too important to BP for it to walk away, but if it wants to grow, it will probably have to look elsewhere, and Russia fits the bill. Chris Weafer of Uralsib Capital, a Moscow-based bank, said: “This is a very clear statement from BP that it sees its future in Russia rather than the US following the Deepwater Horizon disaster.” Russia has the world’s largest reserves of hydrocarbons (oil plus gas) and has attracted western companies since the break-up of the Soviet Union, and BP will be by far the most significant foreign oil group in the country. Doing business there has not been easy, as was demonstrated by the dispute over TNK-BP. Conoco-Phillips, the third-largest US oil group, had a 20 per cent stake in Lukoil, Russia’s largest private sector oil company, but is now selling it after the hoped-for benefits of co-operation failed to materialise. BP is likely to fare better than Conoco. As one of two state-controlled national energy champions, Rosneft has been granted preferential access to developing major new strategic deposits, including on the Arctic shelf, while it is likely to win an extension of tax breaks for its big new Vankor field in east Siberia. In contrast, private companies, including Lukoil, have been blocked from access to big new strategic deposits and are battling against a heavy tax burden and decline at existing fields in west Siberia. Coach Sale However, BP was warning on Friday against expectations of an immediate return from its plans for drilling in the Russian Arctic. The water in the licence areas that it plans to explore with Rosneft is 200 metres deep, and can only be worked 100 days a year because the rest of the time the weather conditions make it unnavigable. The concerns over Arctic drilling that caused President Barack Obama’s National Commission into the BP spill to recommend a moratorium pending improved scientific data are unlikely to restrain Russia, but BP says it could still be three years before the first well is drilled. The Rosneft deal also does not address BP’s other problem: the constraint on its finances created by the costs of the spill. It is a big company, and even if it faces costs and civil and criminal penalties of the more than $40bn or so that it expects, it can survive, but the drain on resources will limit its investment and curb its growth. Facing financial pressures of their own, Rosneft and the Russian state are in no position to inject cash into BP. Indeed, one of the next moves from Rosneft is likely to be a sale of part of the government’s stake on the market, to raise funds for the budget deficit. With the BP deal, Rosneft gets access to western expertise and techniques from a company that, in spite of the deficiencies exposed by the Deepwater Horizon disaster, is still a world leader in offshore oil exploration. It also gets to raise its profile in an alliance with one of the biggest names in global business. What it does not get is an immediate payback. One other issue for BP shareholders to consider is that Rosneft’s holding, described as a long-term strategic stake, will make a takeover more difficult. Talk of bids from Exxon- Mobil and Royal Dutch Shell has often been overstated, the idea has been looked at many times, but the benefits have not yet been found to outweigh the drawbacks. But, with Rosneft as an important strategic partner with 5 per cent, there will be another significant obstacle to a deal. .Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web. Air Yeezy One of the unexpected consequences of last year’s oil spill in the Gulf of Mexico is that it has enhanced the prospects for drilling in one of the world’s most environmentally sensitive areas. BP and Rosneft have had a long-standing relationship, going back to the Russian state-controlled company’s float in 2006, and had been talking about further co-operation for a couple of years, but before the Deepwater Horizon disaster they were not making much progress.