BP Opens the Door for Russian Arctic Exploration

BP's Rosneft alliance illustrates strong business ties to Russian firms and a desire to look outside the US for growth

Catharina Milostan 17 January, 2011 | 9:10AM
Facebook Twitter LinkedIn

BP (BP.) has taken another step to shore up long-term growth potential by forming a global strategic alliance with Russian oil company Rosneft to explore three offshore Russian Arctic licence blocks. BP agreed to swap 5% of its ordinary voting shares in exchange for about 9.5% of Rosneft's shares, equating to about £4.9 billion based on BP's closing share price on January 14.

Key points of the deal include: The firms plan to explore and develop three licence blocks--EPNZ 1, 2, and 3--on the Russian Arctic continental shelf; the blocks cover about 125,000 square kilometres in the South Kara Sea. This alliance expands BP's relationship with Rosneft; BP already held a 1.2% interest in Rosneft and has jointly explored deposits off Sakhalin Island in the Kaigansky-Vasukansky blocks in the Sakhalin V area.

While this may be an intriguing alliance, we do not anticipate any near-term changes to our model assumptions given the long timeline and risk inherent with exploration wells. First, the joint venture partners need to study data to identify drilling locations and then drill exploration wells that may or may not be successful. However, this alliance does illustrate BP's strong business ties to Russian firms and its desire to look outside the United States for growth given the firm's regulatory and legal challenges in the US after the Macondo oil spill.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC392.70 GBX1.06Rating

About Author

Catharina Milostan  Catharina Milostan is a stock analyst with Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures