BP's (BP.) plans to form a strategic alliance with Russian oil company Rosneft to explore offshore Russian Arctic blocks was stymied by an arbitration tribunal ruling that extended an earlier court injunction blocking the deal. BP agreed to a deal with Rosneft in January to form the Arctic exploration venture via a stock swap valued at $7.8 billion, but ran into opposition from AAR, a company representing four billionaire shareholders in BP's TNK-BP Russian joint venture. BP will now apply to determine if it can proceed with a stock swap on its own.
While this ruling may be a setback for BP and Rosneft, we believe it has limited impact on BP's near-term growth outlook, given the long timeline and risks inherent to offshore exploration. As with many offshore exploration ventures, BP and Rosneft would have taken years to study and identify drilling locations in the three exploration license blocks on the Russian Arctic continental shelf. The partners would then need to proceed with exploration wells that may or may not be successful. However, this deal highlights the risks and potential legal and regulatory hurdles that BP and other major oil companies face in developing long-term growth projects in Russia and other emerging offshore regions. We believe BP will continue to move forward with new long-term growth projects and asset sales as it reshapes its postspill upstream portfolio.