MONEY isn’t everything. As the elaborate negotiations over TNK-BP’s ownership continue, BP finds itself in a sticky strategic position, despite a generous offer for its stake.
The apparent $28bn bid from Rosneft for BP’s 50 per cent TNK-BP stake looks attractively priced and would enable the UK oil major to extricate itself from a less-than-ideal relationship with AAR, the oligarch-owned group that currently holds the other half of TNK-BP.
But that’s only worthwhile if BP doesn’t jump from frying pan to fire in Russia. Leaving the tycoons of AAR behind means getting into bed with majority state-owned Rosneft and an uneasy alliance with Vladimir Putin.
When it comes to Rosneft, BP probably has to hold its nose: it would need to weigh its options carefully before getting out of Russia altogether, given the risk of being left out of important upcoming Arctic opportunities and the impact the absence of TNK-BP would have on its production base.
In Russia, Putin’s return to the presidency in May for a six-year term has made the state’s side a safer bet than some of the oligarchs with whom Putin is not known for his cordial relationships. As Rosneft moves toward either partial or full ownership of TNK-BP, it should be increasingly clear to BP which side its bread is buttered. A stake in Rosneft looks like the smart choice for keeping a foothold in this part of the world. Indeed, BP and Rosneft were already exploring options to work together last year, even though those plans ultimately fell through.
One big reason for BP’s eagerness to work with Russia lies in the Russian Arctic, where offshore drilling is just getting underway. The opening-up of this resource-rich, virgin territory brings talk of Russia being able to double its oil reserves. Involvement in the black gold rush makes sense for BP, especially as the current output of TNK-BP is around a quarter of its production. Getting out of Russia wouldn’t just risk BP missing out on future opportunities: it would be a significant reduction in its present business.
But whatever the final terms of the deal with Rosneft, BP is not likely to end up with more than a 20 per cent stake, perhaps as low as 10 per cent. In either case, it won’t be enough to give it any leverage. It could prove as uncomfortable being along for the ride with Putin’s Russia, with its questionable democracy and terrible human rights record, as it has been sharing house space with oligarchs.
Nor is Arctic drilling without its problems. Last month, not another green pressure group but the chief executive of Total warned that the environmental risks are too high.
The last thing BP’s reputation needs is involvement in an oil spill in one of the world’s last pristine environments. And even without such a disaster, protesters can still bring unwanted publicity – Gazprom’s Arctic platform was invaded by Greenpeace in August.
The stakes are high and none of the options are easy. BP probably can’t afford to give up on Russia, but the danger of contamination, either political or environmental, makes it a risky commitment.