Saturday, January 15, 2011

Rosneft and BP Form Global and Arctic Strategic Alliance

BP website, Jan 14, 2011
BP and Rosneft announced today [Jan 14] that they have agreed a groundbreaking strategic global alliance.

Rosneft and BP have agreed to explore and develop three license blocks - EPNZ 1,2,3 – on the Russian Arctic continental shelf. [See map below -- D.R.] These licences were awarded to Rosneft in 2010 and cover approximately 125,000 square kilometres in a highly prospective area of the South Kara Sea. This is an area roughly equivalent in size and prospectivity to the UK North Sea.

                  Map: Location and Scale of South Kara Sea Licences

                                                                          Source: BP

This historic agreement creates the first major equity-linked partnership between a national and international oil company. Following completion of this agreement, Rosneft will hold 5 per cent of BP’s ordinary voting shares in exchange for approximately 9.5 per cent of Rosneft’s shares. The share swap component of the alliance creates strategic alignment to pursue joint [oil and gas] projects and demonstrates mutual confidence in the growth potential of both companies.

BP and Rosneft have also agreed to establish an Arctic technology centre in Russia which will work with leading Russian and international research institutes, design bureaus and universities to develop technologies and engineering practices for the safe extraction of hydrocarbon resources from the Arctic shelf. The technology centre will build on BP’s deep offshore experience and learnings with full emphasis on safety, environmental integrity and emergency spill response capability.

Rosneft and BP have agreed to continue their joint technical studies in the Russian Arctic to assess hydrocarbon prospectivity in areas beyond the Kara Sea. The parties will also seek additional opportunities for international collaboration beyond their 50/50 joint venture partnership in Ruhr Oel GmbH, a refining joint venture in Germany (subject to completion of Rosneft’s recent purchase of 50 per cent of Ruhr Oel from PDVSA).

Igor Sechin, Deputy Prime Minister of the Russian Federation, who participated in the signing ceremony, said: “Global capital and Russian companies are clearly ready to invest in world class projects in Russia; and Russian companies are quickly emerging at the forefront of the global energy industry.”

BP’s chief executive, Bob Dudley, said: “This unique agreement underlines our long-term, strategic and deepening links with the world’s largest hydrocarbon-producing nation. We are very pleased to be joining Russia’s leading oil company to jointly explore some of the most promising parts of the Russian Arctic, one of the world’s last remaining unexplored basins. Underpinning this alliance is a new type of relationship based on a significant cross-shareholding, and bringing together technology, exploration and safe and responsible field development skills. We are very pleased to welcome Rosneft as a strategic partner and major shareholder in the BP Group.”

Rosneft’s President, Eduard Khudainatov, said: “I am pleased that in just a few months we’ve significantly moved forward in implementing Russia’s offshore strategy. In its operations, our future joint venture will utilize the experience and expertise of BP, one of the leaders in the global oil and gas industry. This project is unique in its complexity and scale both for Russia and the global oil and gas industry. We see it as the next step in developing our relations with BP.”

BP Chairman, Carl-Henric Svanberg, said: “The world’s need for energy continues to increase. BP is working with national oil companies using its leading exploration skills and expertise to meet this demand. This is a trend which will increase as access to resource becomes scarcer.

This landmark deal creates a deep partnership which represents a new stage in these relationships. The exchange of shares demonstrates our mutual commitment. The BP board believes that the combination of assets and skills will unlock significant value and thus the issue of shares to Rosneft is in the interests of all shareholders.”

The aggregate value of the shares in BP to be issued to Rosneft is approximately $7.8bn (as at close of trading in London on 14 January 2011). The transaction is subject to certain listing approvals and the completion of certain administrative requirements and is expected to complete within a few weeks. BP and Rosneft view their cross-shareholdings as long term and strategic.

Rosneft is Russia’s leading oil producing company. Read More

(BP already has a 1.3% stake in Rosneft and as a result of the announced transaction, BP's stake in Rosneft will increase to 10.8% -- i.e. 9.5% + 1.3%. Also, Russia accounts for around one quarter of the British energy giant's total production -- before the U.S. oil spill. In 1998, BP and Rosneft started an alliance that eventually led to the formation of three joint ventures to conduct exploration on the Russian continental shelf, offshore Sakhalin. BP also owns 50% of Russia's third biggest oil producer, TNK-BP -- see my blog post here. Rosneft's major shareholder (75.16% of shares) is the company Rosneftegaz, 100% state-owned. For the Rosneft's profile, see Platts Top 250 Global Energy Company Rankings -- No. 14, in my blog here. Rosneft has proved reserves of approximately 18.1 billion barrels of oil and 816 billion cubic meters of gas. As of year-end 2009, Rosneft’s total proved oil and gas reserves under PRMS classification were 22.9 billion barrels of oil equivalent, among the highest for a publicly traded petroleum company worldwide, according to Rosneft's website. Also -- according to Platts data, the company operates 1,690 filling stations in 39 regions of the Russia Federation and 7 refineries. It has operations primarily in Western Siberia, Southern and Central Russia, Timan-Pechora, Eastern Siberia, and the Far East, as well as in Kazakhstan and Algeria. -- D.R.)  

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