London and Moscow - BP has agreed to swap a $7.8 billion (R53.7bn) stake in the company for 9.5 percent of Russian state oil producer Rosneft as part of a drive to extract billions of barrels of petroleum from above the Arctic Circle.
In the first major cross-shareholding between an international oil company and a state-owned producer, the Russian company will hold 5 percent of BP, according to a statement released at a signing ceremony in London at the weekend. The companies will develop three blocks in Russia’s Arctic Ocean, which may hold as much as 100 billion barrels of oil and gas.
The deal is BP chief executive Bob Dudley’s biggest since he took the helm last October, charged with rebuilding the company after the worst US offshore oil spill. The deal with Rosneft strengthens BP’s position in Russia, where it already owns 50 percent of the TNK-BP venture, the country’s second-largest non-state producer.
“This is a deal we wanted to do for a long time,” BP chairman Carl-Henric Svanberg said on Friday. “We get in a big partnership, which also gives us exploration rights in the Arctic.”
Svanberg said BP was comfortable with increasing its presence in Russia, where it has operated for 20 years, even after previous setbacks were experienced by foreign investors. Royal Dutch Shell ceded its majority stake in its Sakhalin project to Gazprom in 2006 after months of government pressure.
BP’s American depository receipts on Friday rose 3.6 percent in New York to close at the highest level since May.
The deal may hurt BP’s efforts in the US to restore its reputation. Representative Edward Markey called for a review of the deal by the State Department and the Committee on Foreign Investment.
“This acquisition will almost certainly complicate the politics of levying and collecting damages from BP following their Gulf of Mexico oil spill,” Markey said on his website. “BP once stood for British Petroleum. With this deal, it now stands for Bolshoi Petroleum.”
BP and Rosneft plan to drill in the Kara Sea in the Arctic Circle off Russia’s north coast. The companies would develop three blocks known as East Prinovozemelsk 1, 2 and 3, for which Rosneft received the rights to drill in October, the statement said. The area is about the same size as the UK sector of the North Sea.
The companies agreed to invest $1.4bn to $2bn in the project through a venture in which Rosneft would hold 67 percent and BP 33 percent, said Rustam Kazharov, a spokesman for the Russian oil company, citing Rosneft chairman Igor Sechin.
The East Prinovozemelsky blocks were “unique” and might hold 5 billion tons of oil and 10 trillion cubic metres of gas, Sechin, who is also Russia’s deputy prime minister, told reporters in London. Together, that is equal to about 100 billion barrels of oil. Svanberg said the blocks would not start producing before 2020.
The share exchange will have a two-year lockup period. BP would be able to issue the new shares after the board approved the deal, which did not require a shareholder vote, BP spokesman Toby Odone said.
BP already owned 1.3 percent of Rosneft after buying shares at the company’s 2008 initial public offering. After this deal, its total holding in the Moscow-based company will be 10.8 percent.
BP and Rosneft’s partnership “may become large-scale and have a serious impact on the global oil and gas industry”, Russian Prime Minister Vladimir Putin said on Friday in a meeting with Dudley in Moscow. “The Russian government intends to create the most favourable tax and administrative regimes” for projects such as this one.
“The Arctic is the new frontier of oil development and Rosneft obviously has faith in BP’s historic interest in offshore drilling,” Edward Jones analyst Brian Youngberg said. – Bloomberg