British oil giant BP Plc failed to close an agreement with Russian oil company Rosneft to secure a joint venture in the oil-rich arctic fields of northern Russia, as the courts ruled the deal unbinding.
BP sought to acquire a 9.5 percent stake in Rosneft’s shares and a joint exploration of the Russian Arctic sea shelf in exchange for a 5 percent stake of its own shares. After the defeat, BP is resubmitting the deal to the court, proposing only a share swap condition excluding an Arctic exploration venture.
BP’s Russian partner company TNK-BP, which has a veto power to BP’s Russian operations, was against the idea of BP’s Arctic exploration with Rosneft and blocked the deal. According to TNK-BP the decision meant BP was "prohibited from entering into any future share arrangement with Rosneft that has any kind of strategic component."
TNK-BP is Russia’s third biggest oil company and among the largest in the world. It is owned 50 percent by BP and 50 percent by Access-Alfa-Renova (AAR) consortium, which is a group of four Russian oil tycoons, all of whom decided to block the deal with Rosneft.
According to Russian news site newsru.com, the AAR Group wants to establish TNK-BP as a major oil company in the future and views the deal between BP and Rosneft to drill on the Arctic sea shelf as a threat to its interests, as it feels excluded from the Russian project. It would instead want to close a similar deal with Rosneft itself, and pursue exploring the Arctic seabed worth an estimated 60 billion barrels of oil.
“The deal would infuriate the Russian billionaires behind TNK-BP—represented by the Alpha-Access-Renova (AAR) consortium—who view Rosneft as a rival. Although replacing reserves by exploring new areas is important for BP, so is the stability of its existing Russian joint venture, which produces a third of the company’s oil,” according to Rowena Mason of The Telegraph, a major newspaper in the U.K.
Bob Dudley, BP’s newly appointed CEO, came under a lot of fire after the deal fell through. Many analysts believe that Dudley came across as incompetent and not organized, as he ruined everyone’s expectations to his promised venture.
"People will be a bit surprised that they ended up getting themselves into this pickle particularly because he (Dudley's) has got so much experience in dealing with the AAR partners," said an analyst who declined to be named.
Earlier this year, Dudley met Russian Prime Minister Vladimir Putin and mentioned that BP is in the process of striking a deal with Rosneft to explore the Arctic seabed. Putin voiced his approval for the deal and “blessed” future cooperation with the British oil giant. Now, after the deal was blocked by an arbitrary panel of TNK-BP, Dudley was proved to not be in control of his own company’s strategy.
"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," said Arbuthnot Securities analyst Dougie Youngson in a research note.
Oil and gas analyst Jason Kenney at ING said, “It’s complicated, isn’t it? But I think the end game is that oil and gas companies have to go to where the resources are. I think the share swap on its own does still make sense because Rosneft shares are undervalued and BP shares are undervalued. It does seem to be a unique way of doing a deal. But there are always going to be a lot of conspiracy theories when you mention Russia and oil.”