June 27, 2014 12:04 pm

BP and Rosneft sign $1.5bn oil deal

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BP and Rosneft on Friday signed a $1.5bn oil supply deal that had been held up by the crisis in Ukraine, in the latest sign that international financial markets are unfreezing for Russian companies.

In its second significant deal with Rosneft since Igor Sechin, chief executive, was sanctioned by the US, BP agreed to make an advance payment of $1.5bn to the Russian state-controlled oil group in exchange for up to 12m tonnes of oil and oil products over five years, Rosneft said on Friday.

The agreement is the latest in a string of so-called “prepayment” deals that Rosneft has signed with buyers including CNPC, Glencore, Vitol and Trafigura as it uses the promise of future oil supplies to boost its financial firepower.

The deal with BP, which owns a 19.75 per cent stake in Rosneft, has been under discussion for many months, according to people familiar with the matter. It hit a snag after Mr Sechin was sanctioned by the US Treasury in April, causing some of the banks financing BP’s advance payment to reconsider the deal.

However, Rosneft announced on Friday that “a number of the world’s leading financial institutions participated in the organisation of advanced payment”. It did not name them.

This transaction opens up new opportunities for both companies: it provides BP with stable supply chain and guaranteed quality of oil products

- Igor Sechin, chief executive, Rosneft

The deal is the latest sign that Russian capital markets are reopening. Sberbank and Gazprombank, two of the country’s top lenders, this week raised €1bn each in the first major bond deals since the annexation of Crimea. And amid a rally in equity markets, oil group Bashneft and the Russian subsidiary of Germany’s Metro are both looking at moving forward with initial public offerings, potentially by the end of this year.

Bob Dudley, the British company’s chief executive, reiterated on Friday that sanctions against Mr Sechin would not affect BP’s relationship with Rosneft.

“I am working here with Rosneft. It’s a business between the companies. I don’t comment on personal sanctions,” he told reporters at Rosneft’s AGM in the eastern city of Khabarovsk, according to Reuters. BP last month agreed to create a joint venture to explore Russian shale oil with Rosneft.

Mr Sechin said on Friday that the deal would “extend and strengthen” Rosneft’s partnership with BP.

“This transaction opens up new opportunities for both companies: it provides BP with stable supply chain and guaranteed quality of oil products and allows Rosneft to support high profitability of its sales activities and acquire additional financial resources in accordance with the referential nature of such deals,” he said.

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