BP-Rosneft $16 billion share swap deal fails

[May 17, 2011]  LONDON (AP) -- BP's hopes of making Arctic oil production the key to its recovery from the Gulf of Mexico spill were dealt a severe blow on Tuesday after it failed to secure a $16 billion share swap with Russia's state-backed Rosneft.

BP PLC revealed a midnight deadline for the deal expired after it failed to broker a settlement with its Russian partners in TNK-BP, its existing joint venture in the country, who have objected to the Rosneft deal.

The London-based company said that discussions would continue with all the parties, but a Rosneft official said the Russian company will now start considering partnership offers from other overseas oil companies.

The failure to shore up the deal to explore the Arctic's oil-rich Kara Sea, first announced by BP with much fanfare in January, is an embarrassing setback for Chief Executive Bob Dudley.

The deal, which would have been Dudley's biggest since taking over from gaffe-prone Tony Hayward late last year, was to cement BP's move forward from the Gulf spill and show it no longer needed to rely so heavily on the United States, where it is still barred from drilling in the Gulf.

The new CEO proclaimed it was "historic" and "groundbreaking," as analysts praised the group for pulling off what was seen as a significant coup for the company after its U.S. problems. Huge oil reserves are thought to lie under the Arctic Circle.

The initiative ran aground after a quartet of Russian billionaires, BP's partners in the older TNK-BP venture, won an injunction in the London courts, claiming the new deal violates their own agreement with BP.

The shareholders, known collectively as Alfa-Access-Renova, claimed they had the right to a share in all BP operations in Russia.

A high-placed source at Rosneft told The Associated Press that the talks had failed on Monday after AAR declined an offer of $32 billion for their 50 percent stake in TNK-BP.

The source said that Rosneft was not interested in further talks with BP and that it could no longer hold off considering partnership offers from other overseas oil companies. The official asked not to be identified because of the sensitivity of the issue.

Rosneft declined official comment. BP did not provide any detail on what it expected talks to entail.

BP shares were down half a percent at 436 pence in early trading on the London Stock Exchange. Rosneft shares were down 1.7 percent at Moscow's MICEX stock exchange.

The billionaire partners in AAR are Alfa Group's Mikhail Fridman and German Khan, Renova's Viktor Vekselberg and Access Group's Len Blavatnik.

Fridman, chairman of Alfa Group, said in the joint statement with BP that AAR sees "significant benefit to developing cooperation with Rosneft within the framework of the TNK-BP shareholder agreement," and is planning "to continue discussions about potential collaboration among BP, Rosneft and AAR."

[Associated Press; By JANE WARDELL and NATALIYA VASILYEVA]

Vasilyeva reported from Moscow.

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