BP not giving up on Russia deal despite latest failure

BP, Rosneft and AAR have missed their latest deadline to cut a deal, meaning Rosneft can now explore other options. But BP isn't admitting defeat yet...

by James Taylor
Last Updated: 19 Aug 2013
Bob Dudley must be sick to the back of teeth of Russia. The BP boss has suffered yet another setback in the country, with his latest failure to secure BP's proposed £10bn share-swap deal with Rosneft. Predictably, the deal seems to have been scuppered by the oligarchs behind AAR, BP's TNK-BP joint venture partner, who (not unreasonably) objected to being elbowed out of the picture. For a while it looked as though several billion quid might have been enough to ease their misgivings, but reports suggest that the three sides couldn't agree over the specifics. BP insisted this morning that it’s not over yet: that it's still exploring a deal with Rosneft, and has promised to kiss and make up with AAR. But Dudley's worry will be that Rosneft is now open to other offers. And there'll be no shortage of interest.

The latest deadline passed at midnight, and despite some last-minute-oil-burning, a compromise clearly wasn't forthcoming. Hence BP was forced to issue a statement this morning admitting that despite 'detailed negotiations with AAR and Rosneft to seek a reasonable and businesslike solution... such a solution has not been found at this time.' According to reports, BP and Rosneft agreed to pay $32bn to buy out AAR's stake in TNK-BP - but the deal fell through because the oligarchs refused to lift their injunction blocking the share-swap on the grounds that it would be months before they'd see this money, and they didn't sufficiently trust the other parties not to renege in the interim. Not a terribly healthy state of affairs between potential partners...

It wasn't all bad news, though. BP said it ‘remains committed to working constructively with AAR in TNK-BP, [which] has been an excellent investment for all parties,’ adding that both parties ‘have agreed to look beyond the disagreements of the past few months and to fully focus on this important and successful business we have built together.' In other words, they're conscious of the need not to undermine a business that has become one of their biggest cash cows. And BP also promised to continue talks with Rosneft, since 'BP and AAR see significant advantages in continuing to deepen this dialogue and cooperation'. So the oligarchs clearly don't want to shut the door on the deal altogether (and with $30bn-odd on the table, we wouldn't either).

The trouble is that the latest lapsed deadline means Rosneft is now free to explore a tie-up with someone else for Arctic exploration. And given all the hassle this proposed BP deal has brought, you couldn't really blame it if it decided to look elsewhere (there's even talk that Rosneft might sue BP for doing a deal it wasn't entitled to do). BP will hope that its long-standing cooperation with Rosneft in the Arctic will still leave it in pole position - but it's hard to see how it's going to get round the thorny issue of AAR's opposition to make a deal happen. And the longer it drags on without a resolution, the bigger a headache it will become for Dudley.

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