Russia's Rosneft Makes Up for BP Debacle With Exxon Deal

Aug. 31, 2011
Analyst: 'This is the best that Rosneft could have hoped for.'

Rosneft has made up for the spectacular debacle of its failed deal with BP by finding a replacement in ExxonMobil that should make the world's biggest energy firm Russia's partner for decades, analysts said Wednesday.

The globally coveted Arctic-oil exploration agreement was signed on Tuesday under the watchful eye of Prime Minister Vladimir Putin -- Russia's effective leader who in January had blessed Rosneft's original tie-up with BP.

That deal broke apart in a furious boardroom squabble, but Putin said the second attempt really would open "new horizons" for the world's energy markets.

The strategic cooperation agreement will initially see ExxonMobil invest a relatively modest $2.2 billion in exploration in the Arctic's Kara Sea and spend another $1 billion on work in the Black Sea.

But Putin's energy czar, Deputy Prime Minister Igor Sechin, played up the deal's historic implications by suggesting that "the total economic impact ... can be estimated at $300 billion to $500 billion" over the next few decades.

Rosneft needs Western knowhow to exploit remote deposits and now can load up on some of the world's most sophisticated equipment that lets it break into difficult markets involving shale gas and hard-to-reach oil.

"This is the best that Rosneft could have hoped for. They reached an agreement with the industry's leader," said UniCredit oil analyst Artyom Konchin.

"I think this unquestionably raises ExxonMobil's status from that of partner to something of a strategic ally for the coming decades," Konchin said.

An Embarrassment of Riches

The scale of potential benefits to both sides is almost unprecedented.

Arkhangelsk-based Northern Federal University has estimated Arctic-reserve volumes at 100 billion tons of oil equivalent -- a figure it said compared to just the 7 billion to 8 billion tons buried in various onshore fields.

The prospects of being the first through the door to such wealth took executives of most of the world's largest oil companies to Russia for talks with Rosneft and Putin.

None of the Western majors involved -- except for BP -- had been willing to accept the political risk of swapping shares with Rosneft and allowing Kremlin-appointed officials to sit on their company boards.

But in a crucial difference with the BP debacle, the deal with ExxonMobil does not feature a cross-holding. "We do not need a share swap at this stage," Sechin emphasized.

Rosneft instead won a promise from ExxonMobil to make it a partner in at least six North American projects -- Russian state oil's first such venture overseas.
"Both the scale of the activities and the spending with Exxon will be wider than originally planned with BP," Pavel Sorokin of Moscow's Alfa Bank wrote in a research note.

"The alliance with Exxon extends beyond Russia and should help Rosneft's international expansion," Sorokin noted.

Rosneft was a just a small state firm until it began in 2004 to take over the assets of the jailed Mikhail Khodorkovsky's Yukos oil giant -- a company with which both BP and ExxonMobil once tried to forge a deal.

Some Rosneft stakeholders said the failed BP deal and its rapid replacement showed that Western investors were willing to overlook various Kremlin intrigues as long as they knew that their money was safe.

"The way that global industry leaders are ready to work with Rosneft shows that they treat the Rosneft as a real national company," a unnamed minority shareholder in the firm was quoted as saying by the website.

"Western investors are not believing this so-called Yukos risk," said the Rosneft shareholder.

BP for its part still operates in Russia through its TNK-BP joint venture and now faces a court hearing later this year into a claim the Rosneft failure cost TNK-BP $3 billion.

The British firm said court bailiffs on Wednesday raided BP's Moscow offices in an operation apparently linked to the upcoming hearing.

Copyright Agence France-Presse, 2011

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