WoodMac: BP's Russian JV could prove first of many

The creation of BP PLC's joint venture with Russian partners Alfa Group and Access-Renova (AAR) emphasizes the strategic importance of Russian oil and gas assets to international oil companies (OGJ, Feb. 17, 2003, p. 34).

April 8, 2003

By OGJ editors

HOUSTON, Apr. 8 -- The creation of BP PLC's joint venture with Russian partners Alfa Group and Access-Renova (AAR) emphasizes the strategic importance of Russian oil and gas assets to international oil companies (OGJ, Feb. 17, 2003, p. 34).

The deal "could well be the catalyst required to spur the foreign investment in Russia's oil and gas sector that was so clearly missing in the first decade of the post-Soviet era," said Edinburgh-based consultant Wood Mackenzie Ltd.

Although other international oil companies have yet to match the level of understanding that BP has developed in Russia, the deal nevertheless raises numerous issues relevant to future transactions, WoodMac said.

"BP's willingness to operate under the existing tax regime is a key signal," WoodMac said. Production-sharing agreements will have a role in the future for large infrastructure development projects, "but they will not be the backbone of the Russian tax system."

Significant opportunities in Russia remain with some of the best assets still being available, but major investment will be needed. BP's deal gained the Russian government's blessings, prompting other Russian companies to become more eager for international investment, WoodMac said.