The tie-up unraveled because BP failed to mollify the partners in its existing Russian venture TNK-BP who claim the company has no right to strike a new deal in the country without them.
BP chief executive Bob Dudley had trumpeted the Arctic exploration pact and share swap with Rosneft, which was signed in January, as a signal that BP could still offer growth after its disastrous Gulf of Mexico oil spill last year.
While some said BP was better off not pursuing the deal, failure to see it through has been seen as an embarrassment for Dudley, who said on Tuesday talks aimed at resolving the problem with TNK-BP partners had not reached agreement.
“This is putting a brave face on a disappointing episode. While the market may see this as disappointing we believe it is better to walk away than have a bad deal,” Evolution Securities analyst Richard Griffith said in a research note.
The collapse of the deal marks a personal setback for Russia’s Deputy Prime Minister Igor Sechin.
He has masterminded Rosneft’s growth and development since it acquired the assets of bankrupt oil firm Yukos and went on to open an eastern pipeline export route for Russian crude to the Asia-Pacific.
Sechin and his boss, Prime Minister Vladimir Putin, have become accustomed to being able to dictate terms in strategic oil deals. Sources say Sechin has a good personal relationship with Dudley and views the share swap component of the BP deal as particularly attractive, but Rosneft does have other options in the Arctic.
BP’s partners in TNK-BP — four Russian billionaires represented by the Alfa-Access-Renova (AAR) consortium — objected to the Rosneft tie-up, saying BP was obliged to pursue all its Russian ventures through TNK-BP.
The tycoons successfully took court action to block it, leading to a last-ditch effort to push the deal through on Monday with BP and Rosneft making a cash and stock offer to buy out AAR, in an attempt to find a compromise with BP’s partners.
But there was no agreement and, after months of wrangling, Rosneft has decided to pull out of the proposed BP pact and search instead for new partners to explore the three Arctic Kara Sea blocks earmarked for the offshore venture with BP, a source close to the company said.
Rosneft is talking to Exxon, Shell, Chevron and Chinese companies to explore the offshore territory, the source said. Rosneft had no comment.
BP had until midnight on Monday to complete the $16 billion share swap with Rosneft. BP and Rosneft offered $32 billion, including $9 billion in BP stock, to buy AAR’s stake in TNK-BP, Russia’s No. 3 oil company, the source said.
A source close to BP said it still hoped to buy out its TNK-BP partners, although there was no timeline for this. The company said talks with Rosneft would also continue.
“BP remains committed to Russia, to working constructively with AAR in TNK-BP and to our existing good relationship with Rosneft,” Dudley said in a statement.
Collins Stewart said it believed there was a still a “high probability” that a deal between BP and Rosneft would be struck in the coming weeks.
Mikhail Fridman, Chairman of Alfa Group and one of the four tycoons who control AAR, said there would be more talks between the three parties:
“We look forward to working with BP on delivering the next phase of TNK-BP’s growth, both in Russia and internationally. AAR also sees significant benefit to developing cooperation with Rosneft within the framework of the TNK-BP Shareholder Agreement, and we plan to continue discussions about potential collaboration among BP, Rosneft and AAR.”
The TNK-BP partners are keen to get the Arctic exposure since the joint venture with BP has limited growth prospects due to a mainly mature onshore portfolio.
