BP (BP.) has taken another step to shore up long-term growth potential by forming a global strategic alliance with Russian oil company Rosneft to explore three offshore Russian Arctic licence blocks. BP agreed to swap 5% of its ordinary voting shares in exchange for about 9.5% of Rosneft's shares, equating to about £4.9 billion based on BP's closing share price on January 14.
Key points of the deal include: The firms plan to explore and develop three licence blocks--EPNZ 1, 2, and 3--on the Russian Arctic continental shelf; the blocks cover about 125,000 square kilometres in the South Kara Sea. This alliance expands BP's relationship with Rosneft; BP already held a 1.2% interest in Rosneft and has jointly explored deposits off Sakhalin Island in the Kaigansky-Vasukansky blocks in the Sakhalin V area.
While this may be an intriguing alliance, we do not anticipate any near-term changes to our model assumptions given the long timeline and risk inherent with exploration wells. First, the joint venture partners need to study data to identify drilling locations and then drill exploration wells that may or may not be successful. However, this alliance does illustrate BP's strong business ties to Russian firms and its desire to look outside the United States for growth given the firm's regulatory and legal challenges in the US after the Macondo oil spill.
