Last Friday, BP and Russian integrated oil major Rosneft announced a deal to explore for oil in the Arctic. This morning, BP's shares are up by 2.4 per cent in London, but Rosneft's are up by more in Moscow. Does that mean the Russians have got the better end of the deal.
Not necessarily. It's a share swap, with BP transferring five per cent of its share capital in exchange for a 9.5 stake in Rosneft. The smaller rise in BP's shares appears to reflect a degree of political and legal uncertainty surrounding the deal.
Some US politicians view BP's new alliance with a Russian state-controlled producer as a slap in the face following last year's events in the Gulf of Mexico. This presupposes that the deal has somehow been cooked up since last August, but BP has been involved in the Russian oil and gas sector for the past 20 years.
Furthermore, national governments had aready been going to great lengths to secure licensing areas within the Artic Circle, which is estimated to contain anything between 25-35 per cent of the world's undiscovered petroleum resources. The problems in the Gulf of Mexico have done little to dent this enthusiasm, although they've certainly provided the environmental lobby with plenty more reasons to oppose Arctic drilling.
Nor are BP's existing Russian bedfellows quite at ease with the Rosneft tie-up. The Russian shareholders in AAR, the Russian partner in BP's existing TNK-BP joint venture, have voiced concerns about its legality. Still, given that the BP/Rosneft deal would have required rubber-stamping from Prime Minister Putin's office, it's hard to see how they would block the deal.
And assuming all these objections are overcome, there's still the issues of geology, logistics and climate. Very little infrastructure is in place to support the Kara Sea joint venture, and offshore conditions are periodically abysmal. The Russian government's effective tie-up with BP is an implicit acknowledgement that it remains one of the few firms with the financial clout and proprietary technology to even attempt such an undertaking.
