BP in stock swap, offshore drilling deal with Rosneft

Deal between global giant and state-controlled business raises concerns in U.S.


LONDON — BP Plc and Russia's state-controlled Rosneft agreed to a share swap under which they would jointly explore for offshore oil and gas, in a deal that immediately raised concerns in the U.S. about Russia's global oil ambitions.

BP, recovering from its Gulf of Mexico oil spill, said Friday it will swap 5 percent of its shares, valued at $7.8 billion, for 9.5 percent of Rosneft. BP said it will issue new shares to Rosneft.

The deal covers areas in the South Kara Sea in the Arctic that BP said could contain billions of barrels of oil and gas.

The deal, which is expected to be completed in a few weeks, highlights a sharp turnaround in relations with Moscow both for BP and its Chief Executive Bob Dudley. Dudley was forced to flee Russia in 2008 after heading BP's Russian joint venture, TNK-BP
Dudley said the deal was the first significant cross-shareholding between a nationally owned oil company and an international oil company.

Dudley called the deal "a new template for how business can be done in our industry .... This is truly the first alliance fit for the 21st century."

Dudley had been the boss for TNK-BP's formation in 2003 and was forced to leave following what he described as a campaign of harassment by BP-TNK's billionaire oligarch co-owners.

The issue has since been resolved and Dudley returned to Moscow for the first time this summer, following his appointment as CEO of BP.

Tony Hayward, Dudley's predecessor who was vilified for his handling of BP's massive Gulf of Mexico spill in 2010, holds a seat on TNK-BP's board of directors.

"They've chosen to get into that part of the world to expand reserves and for future growth in production," Michael Cuggino, CEO of Pacific Heights Asset Management and a BP shareholder, said.

"So I don't know if this is something new, or just a recommitment to that strategy. The problem is they had a difficult time a few years ago," he said.

Russia is a key part of BP's global operation, providing the company with a quarter of its reserves before the U.S. oil spill, so it is vital for Dudley to establish a good working relationship with the world's largest oil exporting nation.

Congressman Edward Markey, who is the top Democrat on the House Natural Resources Committee, immediately called for a review of the deal by U.S. regulators.

BP has a market capitalization of $150 billion U.S. dollars, while Rosneft is valued at about $83 billion