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BP and Russia sign Arctic oil deal
Concern from environmentalists and US politicians as UK firm agrees to explore area with state-run energy giant Rosneft.
Last Modified: 15 Jan 2011 14:48 GMT
 Dudley, left, held talks on Friday with Putin, right, at the Russian PM's Novo-Ogaryovo residence outside Moscow [AFP]

BP has signed a joint venture with Russia's state-controlled energy giant Rosneft to explore for offshore oil and gas and in a deal that gives the UK company access to areas of the Arctic previously reserved for Russian companies.

The British energy giant will swap five per cent of its shares, valued at $7.8bn, for 9.5 per cent of Rosneft in an agreement that immediately raised concerns about US economic security from US politicians and criticism from environmentalists.

The deal covers huge areas of the South Kara Sea in the Arctic that BP, which is still recovering from the financial impact of the Gulf of Mexico oil spill, said could contain billions of barrels of oil and gas.

The companies will explore three areas, known as EPNZ 1, 2 and 3, located on the Russian Arctic continental shelf and covering an area of 125,000 square kilometres.

'Remarkable' deal

The government of Vladimir Putin, the prime minister, has pledged to ease investors' access into Russia as it looks to foreigners to play a key role in helping to modernise the economy - including through taking part in a big privatisation drive starting this year.

Speaking to Al Jazeera, Stanley Reed, the author of a book about the BP Gulf of Mexico oil spill called In Too Deep, said: "All the major oil companies are trying to figure out how to make deals with the producing countries that have most of the resources of oil and gas in the world and this deal ... is an interesting way of trying to solve that problem.

Following the Gulf of Mexico disaster which has put BP under pressure in the US, Reed said that by signing a deal with Russia the company was "hedging their bets" and that the deal "shows how resilient and, quite frankly, creative they are."

However, Reed warned that BP's position in Russia was vey much at the whim of whoever is in power there.

"Russia is a very difficult place, it all depends on who is in charge and whether they're in favour, so if something happens to Mr Putin, or whatever, then BP might be out of favour, but it looks good so far," he said.

"It's remarkable to be able to pull something like this off."

Skills gap

BP is seen as filling a skills and technology gap for Rosneft as it seeks to develop the region.

"Rosneft is well aware that its ability to do deepwater Arctic work alone is very limited," Cliff Kupchan, a director at Eurasia Group, a global political risk consultancy based in Washington, said.

"They have been looking for ways to bring in companies with the technology and especially management skills needed to pull off deepwater Arctic work."

Edward Markey, a US congressman who is the senior Democrat on the House Natural Resources Committee, immediately called for a review of the deal by US regulators to see whether it affects the national and economic security of the US.

He noted that in 2009 BP was the top petroleum supplier to the US military.

Michael Burgess, a Republican congressman who is on the House Energy and Commerce Committee, also said the deal "deserves some analysis and scrutiny" by the government's Committee on Foreign Investment in the US given BP's ownership of critical oil assets in the US.

The US Treasury said it is forbidden by law to comment on investigations, planned or under way, by the committee.

Environmental concerns

Environmentalists also raised concerns about the deal.

"It seems the company learned nothing last year in the Gulf of Mexico."

Charlie Kronick,
Greenpeace

"Now BP has bought its way into the Arctic by the back door," Charlie Kronick of Greenpeace said. "It seems the company learned nothing last year in the Gulf of Mexico."

However, Chris Huhne, the UK secretary of state for energy and climate change, welcomed the "groundbreaking" deal and called it "good news for Europe, for the UK's energy security and worldwide."

The venture underscores Europe's dependence on Russia for a rising share of its energy needs - particularly for clean-burning natural gas.

Russia holds one-fifth of the world's reserves of natural gas.

Friday's deal highlights a rebound in relations with Moscow both for BP and Bob Dudley, its chief executive, who was forced to leave Russia in 2008 after heading BP's Russian joint venture, TNK-BP, which is half-owned by BP.

'Fistfight to lovefest'

Dudley said the deal, announced late on Friday, was the first significant cross-shareholding between a nationally owned oil company and an international oil company and called it "a new template for how business can be done in our industry".

Dudley had been the boss for TNK-BP's formation in 2003 and was forced to leave due to what he described as a campaign of harassment by BP-TNK's billionaire oligarch co-owners.

The issue has since been resolved and Dudley returned to Moscow for the first time this summer, following his appointment as CEO of BP.

"It has turned from a fistfight into a lovefest," Kupchan said.

BP has a market capitalisation of $150bn, while Rosneft is valued at about $83bn.

Source:
Agencies
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