Possible Outcomes from the BP-Rosneft Stalemate

While few conclusions can be made before deal terms are agreed between BP and Rosneft, the troubled deal highlights weakness in BP's leadership

Catharina Milostan 15 April, 2011 | 10:52AM
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BP (BP.) and Russian oil company Rosneft extended the deadline for its proposed share swap to May 16 from April 14, giving the firms more time to try to resolve challenges from BP's partners in the 50/50 Russian joint venture, TNK-BP.

BP agreed with Rosneft in January to a stock swap of 5% of BP shares valued $7.8 billion at the time for a 9.5% stake in Rosneft and the formation of a joint venture to explore offshore on the Russian Arctic continental shelf. The firms ran into legal challenges blocking the deal from AAR, which represents the Russian partners in TNK-BP. Time may be running out for BP to reach an agreement with its TNK-BP partners to allow the Rosneft deal to move forward. BP's CEO Bob Dudley indicated that offers to TNK-BP Russian partners included participation in the Arctic, other international ventures, or a joint offer with Rosneft to buy out the partners, but to no avail.

Included among speculation on possible solutions were comments from Rosneft executives suggesting the firm may look for other potential Arctic exploration partners. It could make sense to see other major oil firms such as ExxonMobil (XOM), Chevron (CVX), Total (TOT), or Statoil (STO) step in as potential partners to Rosneft, but much will depend on potential deal terms. For BP, a halt to this deal highlights inherent risks to developing long-term exploration projects in emerging regions, Dudley's inability in securing a major deal for potential long-term growth, and ongoing challenges from a troubled relationship with TNK-BP's Russian partners. However, we believe BP can move forward with current plans to reshape its upstream portfolio with asset sales and drive production growth from a broad mix of upstream projects underway or under review for approval on several continents.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC382.00 GBX1.00Rating

About Author

Catharina Milostan  Catharina Milostan is a stock analyst with Morningstar.

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