The heads of energy giant BP and state-run Russian oil firm Rosneft announced a deal on Friday to swap shares in a joint venture to exploit the vast untouched energy resources of the Arctic.
In what BP chief executive Bob Dudley said was an “historic” deal, the firms will explore and develop Rosneft’s three licensed blocks on the Russian Arctic continental shelf for what are expected to be major reserves of oil and gas.
The deal puts BP — still recovering from the Gulf of Mexico oil spill last year, which is set to cost the firm US$40 billion — at the forefront of the race to exploit the potentially huge energy reserves in the Arctic.
“Following completion of this agreement, Rosneft will hold 5 percent of BP’s ordinary voting shares in exchange for approximately 9.5 percent of Rosneft’s shares,” the new partners said in a joint statement.
The shares issued by BP are worth approximately US$7.8 billion, and Rosneft’s will be similar, the firms said.
Dudley and Rosneft president Eduard Khudainatov signed the deal at a press conference in London, shortly after Russian Prime Minister Vladimir Putin announced the agreement in Moscow.
Khudainatov said the areas that BP and Rosneft would be working in, which cover 125,000km2 in an area of the South Kara Sea, contained 5 billion tonnes of oil and 3,000 billion cubic meters of gas.
BP currently has a 3 percent stake in Rosneft, and Russia accounts for around one-quarter of the British energy giant’s total production.
BP also owns 50 percent of Russia’s third-biggest oil producer, TNK-BP, where Dudley served as chief executive for five years until he was expelled by BP’s Russian partners during a shareholder dispute in 2008.
Putin met Dudley in Moscow earlier on Friday, telling him, according to Russian news agencies: “The Russian government is going to support your joint work.”
British Energy Secretary Chris Huhne also welcomed the “groundbreaking deal,” saying it was “good news for Europe, for the UK, energy security and worldwide” — and showed that BP was “very much open for business.”
However, the agreement is likely to anger environmentalists who have warned that such exploration could damage the fragile Arctic ecosystem.
BP has endured a torrid time following last year’s oil spill in the Gulf of Mexico, and it is currently in the process of selling US$30 billion in assets to cover its part of the bill for the disaster, which has left its reputation in the US in tatters.
However, BP also reported a net profit of US$1.785 billion for the third quarter of last year — a huge turnaround following a loss of US$16.9 billion during the second quarter.
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