BP makes renewed share-swap offer to Rosneft

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, May 18 -- Russia’s OAO Rosneft said it would continue negotiations with BP PLC on developing the Arctic despite the passing of a deadline for agreement on a $16 billion share swap.

The Russian firm said it had received fresh proposals from BP that went “beyond previous agreements” and did not “require the extension of the deadline” for the share swap.

Rosneft’s announcement followed a statement from BP that it would intensify efforts, along with its TNK-BP partners Alfa-Access-Renova (AAR), to ensure the joint firm’s continued success following the lapse of the BP-Rosneft share-swap transaction.

BP said it has conducted “detailed negotiations with AAR and Rosneft to seek a reasonable and businesslike solution” that would allow the agreements to proceed to the satisfaction of all parties.

“Such a solution has not been found at this time, although talks will continue,” BP said.

The Rosneft and BP announcements came after talks to buy out AAR collapsed on May 16 apparently ending BP’s effort to persuade its partners to lift their legal block against BP’s proposed alliance with Rosneft.

AAR earlier won a legal injunction blocking BP’s proposed alliance with Rosneft, claiming the agreement breached the shareholder agreement that TNK-BP must be granted right of first refusal on any new Russian ventures.

In particular, AAR had blocked the BP-Rosneft agreement in court, arguing it violated exclusivity terms in the shareholder agreement governing their 50-50 joint venture TNK-BP—a point underlined by the Russian government.

Indeed, Russia’s President Dmitry Medvedev took the opportunity to roundly criticize Deputy Prime Minister Igor Sechin for lapses that contributed to the collapse of the agreement between Rosneft and BP.

"Those who prepared the deal should have paid closer attention to the nuances of the shareholder agreement," said Medvedev, adding, “It would have been necessary to conduct more careful due diligence inside the government."

Industry observers said the collapse of the deal marks a personal setback for Sechin who had masterminded Rosneft’s development after it acquired the assets of OAO Yukos and went on to open the East Siberia-Pacific Ocean pipeline.

Rosneft said May 18 that BP had made clear that “they did not want to close the chapter and made fresh proposals that Rosneft will now review.” Rosneft also said BP acknowledged the need to gain permission from the TNK-BP board in order for any cooperation with Rosneft to proceed.

However, a senior Rosneft official indicated that the firm had little desire to return to the negotiating table to buy out AAR, saying AAR’s unconstructive position had exhausted the chances of an agreement.

As a result of the collapsed talks, Rosneft said it is free to review offers from other global oil majors to develop the three blocks of the South Kara Arctic sea that had been earmarked for the proposed alliance with BP.

Earlier this month, BP announced that Rosneft had become its new 50% partner in the German refining joint venture, Ruhr Oel GMBH, following the departure of former partner Petroleos de Venezuela SA.

The Ruhr Oel announcement coincided with reports that an arbitration panel issued a consent order permitting BP and AAR to assign the so-called Arctic opportunity to TNK-BP, subject to consent by Rosneft (OGJ Online, May 6, 2011).

Contact Eric Watkins at hippalus@yahoo.com.

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