The market welcomed BP’s £10billion deal with Russian oil giant Rosneft yesterday following Friday’s news of an Arctic exploration alliance.
Shares in BP rose 2% in the morning on the first day of trading since the “groundbreaking” deal was announced, despite reports of opposition from the UK major’s partners in Russian joint venture TNK-BP.
On a day the FTSE 100 index ended in the red, the BP shares gave back most of their gains to finish up just 1.2p at 500.7p.
Under the alliance, BP will take an additional 9.5% stake in Russian state-owned Rosneft, while it will take a 5% stake in the UK company.
They will work together to explore the Russian Arctic continental shelf in an area of the South Kara Sea covering about 48,000 square miles; one of the world’s last remaining unexplored basins.
It will give BP access to a new territory, while Rosneft will gain from BP’s expertise in deepwater drilling.
There were reports of a backlash from co-owners of TNK-BP, with speculation they were examining whether the deal breached their agreement to only pursue new opportunities in Russia through the venture. Experts at Collins Stewart said there might also be political opposition in America and that doing more business in Russia will increase BP’s risk profile in the eyes of many investors. They added: “While this deal could prove to be a major long-term positive for BP, we think it raises a host of issues, both positive and negative.”
They estimate that, while there could be tens of billions of barrels of oil in the region, any reserves would take a long time to tap because of its remote location.
Analysts at Goldman Sachs said: “We think that this is a unique opportunity for BP to gain access to a prospective new frontier area, where direct access as a non-Russian company would not have been possible.”
The deal, which will make Rosneft BP’s biggest shareholder, has come under scrutiny in the US, where BP is a major supplier to the military. Congressman Edward Markey is reported to have said that the deal’s impact on America needed to be examined thoroughly.
Meanwhile, Yukos, another Russian oil company, is reported to have warned BP’s shareholders that Rosneft owns assets stolen from it.
Yukos was Russia’s biggest oil producer before boss Mikhail Khodorkovsky was jailed for fraud in 2003 and Rosneft took over most of its assets. The deal will bump BP’s shareholding in Rosneft up to 10.8%.