© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: January 17, 2011 5:59 pm
For a deal with a headline value of $15.6bn, BP’s alliance with Rosneft to explore in the Arctic Sea has had a remarkably muted reception. Investors awaiting chief executive Bob Dudley’s transformation of the UK oil major in the wake of the Gulf of Mexico calamity seem unimpressed: after an initial spike on Monday, BP’s shares went into a tame decline to close broadly unchanged. That is understandable: the alliance has created a lot of noise. The question is whether it creates any value.
The answer is: perhaps not for a decade. The deal is more an exchange of competitive advantages. Rosneft offers access to the Arctic in exchange for BP’s technology. No cash is changing hands. BP is not booking reserves or earnings, but will get a Rosneft dividend. The UK oil major’s earnings will be diluted slightly – 4 per cent by most analysts’ estimates. It seems investors in BP can live with that.
What makes the alliance intriguing, and potentially very risky, is the uncertain timing of any real returns for BP. It may be playing too long a game. If there is oil, it won’t be coming ashore for perhaps a decade, long enough for the alliance’s political risks to undermine its strategic rationale. In rushing off to Russia, BP could be accused of thumbing its nose at the US Congress, which is still on its case. Rosneft is the reconstituted Yukos, so there could be legal trouble on that front.
The Rosneft alliance also threatens BP’s venture with TNK-BP, which accounts for a quarter of BP’s production and 20 per cent of its reserves. It will also make BP even more dependent on Russia. Folding TNK-BP into the Rosneft alliance, floating it separately or selling it, are ways of consolidating that exposure. If it is transformation he is after, Mr Dudley should consider one of these options.
E-mail the Lex team in confidence
Please don't cut articles from FT.com and redistribute by email or post to the web.