New Legal Setback Halts BP's Russia Dream

April 8, 2011
The deal with Rosneft would allow BP to be first through the door to the enormous energy wealth believed to be buried in the Arctic -- where large areas are controlled by the Russian state.

An arbitration tribunal on April 8 delivered another blow to BP's dream of completing a tie up with Rosneft, by blocking its historic share swap agreement with Russia's largest oil firm. The ruling gave the British giant an extension beyond the initial April 14 deadline to present its case but added the injunction would "remain in place until further notice."

The Stockholm panel's ruling came just two weeks after the same tribunal kept BP from proceeding with its plans to dig for oil in the vast plots of Arctic land owned by the Russian state-controlled company.

Both parts of the historic $16 billion tie up -- which was blessed personally by Prime Minister Vladimir Putin in January -- were fought by the billionaires who make up the Russian half of BP's local venture TNK-BP. The group fears the deal will eventually make their company redundant and argued that they had the right to bid on the Rosneft project first.

Today's decision was immediately hailed by the Russian billionaires and dismissed by BP as just another step in a winding legal battle to complete a deal that makes up a vital part of its strategic future. "The share swap and the Arctic opportunity announced January 14 remain subject to the final decision of the arbitration tribunal," BP said.

The Russian billionaires -- known collectively as AAR and led by Alfa Group head Mikhail Fridman -- said they were willing to fight the tie-up to the end.

"AAR welcomes the decision of the tribunal, which we consider fair, balanced and thoughtful," AAR chief executive Stan Polovets said. "We will be pleased to continue to cooperate with the tribunal and will provide any additional information and evidence it requires during the next stage of the hearings."

The original agreement was announced as BP struggled to overcome the damage to its reputation and finances caused by the 2010 Gulf of Mexico oil spill.

The deal with Rosneft would have made BP first through the door to the enormous energy wealth believed to be buried in the Arctic -- where large areas are controlled by the Russian state. But the agreement came to almost an immediate halt when panels in London and then Stockholm sided with the Russian shareholders in BP's local venture.

The Russian billionaires noted that TNK-BP had the right of first refusal on any deal with Rosneft and argued that the tie up broke the joint venture's shareholder agreement.

Analysts initially said BP would still probably manage to somehow complete the deal because it was personally backed by close Putin ally Igor Sechin -- the Rosneft board chairman who serves as Russia's effective energy czar. But Sechin's own position was shaken at the end of March when President Dmitry Medvedev announced plans to dismiss all government officials from their seats on state company boards by the end of the year. Sechin appeared non-committal on April 8 by noting the decision allowed both sides more time to present evidence backing their rival claims.

"I think that there will be a way out of this," news agencies quoted Sechin as saying.

Analysts meanwhile noted that Russia was unlikely to drop BP simply because Sechin was a part of political intrigues that are preceding a presidential election next year in which either Putin or Medvedev can run.

"A strong Rosneft does not hurt Medvedev," said UniCredit equity analyst Artyom Konchin. "I do not think that he is trying to rein in Rosneft. That would be a strange policy that runs counter to his market ideology. "I think Rosneft still wants to partner with BP in the Arctic and that we will soon see this confirmed by a more flexible deadline from Rosneft for this transaction to go ahead."

Copyright Agence France-Presse, 2011

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