Oil partnership

It appears to be what management consultants call a "win-win" situation: in a multi-billion-dollar deal, British energy giant BP has sold its 50 percent stake in its Russian joint venture, TNK-BP, to the Russian state oil company Rosneft. In return, BP gets $17.1 billion (13.2 billion euros) in cash - and more importantly, a stake in Rosneft.

Adding these shares to the 1.25 percent stake BP already holds in Rosneft, and to the 5.7 percent stake the Russian government is set to sell to BP, the deal will turn the British company into the second largest shareholder of Rosneft, with two seats on the board. Rosneft, for its part, will become the largest publicly traded oil company (by production), as it also buys out BP's partners in TNK-BP.

"We consider this is a deal that will deliver both cash and long term value for BP and its shareholders," BP's chairman Carl-Henrik Svanberg said in a statement. Chief executive Bob Dudley added that BP intended to be a long term investor in Rosneft.

Troubled history

But to Jürgen Döschner, a former Russia correspondent and energy expert with German public broadcaster WDR, the deal comes as "a bit of a surprise." After all, he says, Dudley has had his share of experience of what may happen when business relations with a Russian company turn sour. Four years ago, Dudley, then head of TNK-BP, was forced to flee Russia amid a dispute over strategy in the joint venture.

TNK-BP was founded in 2003, with 50 percent of it owned by BP and 50 percent by the Russian AAR consortium.

"TNK-BP delivered an extraordinary performance, and was by many measurements very successful," says John Lough, an expert on Russia's energy diplomacy with the London-based think-tank Chatham House. "But the partnership betwen BP and AAR had completely broken down."

That became painfully obvious last year. In January, BP and Rosneft planned to jointly explore for offshore oil and gas in the Russian Arctic. But the deal fell through when the Russian partners in TNK-BP contested it. Rosneft then teamed up with US oil giant ExxonMobil instead. 

Yet Lough is confident that the business relationship between BP and Rosneft will be less troubled. "In TNK-BP, it was a fifty-fifty joint venture, and it was a matter of sharing control. But with Rosneft, it is a very different arrangement and questions about operational control will not arise."

Arctic adventure

In fact, it may have been the Arctic that has now brought BP and Rosneft together. According to a 2008 US geological survey report, the area north of the Arctic Circle holds about 22 percent of the undiscovered, but technically recoverable resources in the world. 

"Russia wants to explore the Arctic," says Döschner, "but in order to do that, they need BP's know-how."

Drilling for oil in the Arctic is not easily done. Shell was recently forced to put off its efforts to drill wells off the coast of Alaska, because crucial equipment was damaged during tests.

But for BP, says Döschner, it is crucial to explore new oil resources. "At the stock exchange, besides all the other indicators, they also evaluate a company's oil reserves. There is a rate of putting the amount of barrels of oil sold in relation to newly explored fields," he explained. "So if companies like BP want to do well on that rate, they have to co-operate with state-backed oil companies. In basically all the regions that private companies have access to by and of themselves, there are hardly any oil reserves left."

Power shift to the state

For Döschner, the deal exemplifies one thing - the bind that oil companies find themselves in. "It used to be that the Big Four among the private companies - Shell, BP, ExxonMobil and Chevron - held 80 percent of the oil and gas reserves," he says. "But these days, they only hold some 20 percent, and it's the state-owned or state-backed companies that hold 80 percent of the remaining reserves."

According to John Lough, that doesn't mean that energy security will become even more of an issue in Europe. But some analysts do have reservations about the situation BP is getting itself into, pointing to potential corporate governance risks in partnering up with a company that many perceive as a proxy for the Russian state.

"There is a great deal of legal uncertainty," says Döschner. "This is Russia, after all."