After a Monday midnight deadline passed, BP’s proposed deal with Rosneft lapsed as the company failed to reach a last-minute agreement with Rosneft and resolve a dispute with BP’s Russian partners in a separate joint venture, TNK-BP.
The TNK-BP partners had taken legal action to block the BP-Rosneft deal almost as soon as it was announced in January.
BP said Tuesday it would continue to talk to both Rosneft and its partners in TNK-BP about collaborating in the future. But some analysts said salvaging the original deal would be difficult.
“This opportunity is probably not going to happen” for BP, said Jane Coffey, a fund manager at Royal London Asset Management. “It leaves them without a strategy and calls into question the focus of the management.”
The Rosneft deal was supposed to help BP turn a page after the disastrous oil spill in the Gulf of Mexico. It was also the company’s first big transaction since Robert W. Dudley took over as chief executive at the end of last year and was part of his strategy to focus on BP’s exploration capabilities in faster-growing markets like Russia and India.
Under the proposed arrangement with Rosneft, BP would have gained access to the Kara Sea, an arm of the Arctic Ocean that the energy industry considers to be a new frontier in oil exploration. It would also have left BP and Rosneft with small equity stakes in each other.
But the Russian shareholders in TNK-BP, billionaires who operate through a holding company called AAR, had argued before an arbitration court in Sweden that Rosneft deal violated the terms of their joint venture with BP. That court recently ruled that the BP-Rosneft share swap could proceed but that TNK-BP should have an opportunity to participate in the exploration part of the deal.
But BP was unable to renegotiate the deal with Rosneft and work out a resolution with AAR by the Monday deadline BP and Rosneft had agreed to.
Some investors evidently saw the lapsed deal as positive news, because the Rosneft share swap would have diluted the value of BP’s stock. BP shares rose more than 1 percent in London on Tuesday before closing 0.8 percent lower.
In negotiations over the weekend and through Monday, BP had discussed buying out its partners in TNK-BP for about $32 billion. But BP could not have raised that amount by itself and Mr. Dudley said he was not willing to cede a significant stake in BP itself to the Russian oligarchs as part of a buyout.
Rosneft, for its part, was unlikely to help buy out the TNK-BP partners, which would have entailed handing over cash or stock to a group of Russian billionaires whose interests are not necessarily the same as those of the Kremlin leaders who ultimately oversee Rosneft.
“A solution has not been found at this time, although talks will continue,” BP said in a statement on Tuesday. Mr. Dudley said that BP remained “committed to Russia, to working constructively with AAR in TNK-BP, and to our existing good relationship with Rosneft.”
Rosneft rejected BP’s request to extend the deadline for reaching an agreement for a second time in two months, two people with direct knowledge of the talks said. They declined to be identified because the talks were not public. A spokeswoman for Rosneft declined to comment.
Rosneft is now free to open talks with other international oil companies to explore the Kara Sea. There is a short list of potential partners — oil majors with both offshore expertise and experience working in Russia.
According to Valery Nesterov, an oil analyst at Troika Dialog, a Moscow investment bank, the likely candidates are Statoil, which is partly owned by the Norwegian government; Exxon Mobil; Chevron; Royal Dutch Shell; and Total.
Rosneft’s ambitions in the Arctic go well beyond the BP deal. The Russian government has awarded Rosneft broad authority to negotiate multiple exploration deals with foreign companies. Under a no-bid process, Rosneft won licenses to 17 exploration blocks in the Arctic. BP’s proposed deal covered only two. Soon after the BP deal was announced, Rosneft’s chief executive, Eduard Y. Khudainatov, said he was negotiating similar joint venture agreements with other major oil companies intent on exploring the Arctic continental shelf off Russia’s northern coast. That list included Shell, its chief executive confirmed in an interview at World Economic Forum in Davos, Switzerland, in January. In the Black Sea, Rosneft in the past year announced joint venture agreements with Chevron and Exxon.
Rosneft, though, is unlikely to find an international major other than BP willing to sell a stake in itself to the Russian national oil company, industry analysts say. BP was willing to dilute its shares when others might not because BP was weakened financially. Also, BP was desperate to show it had growth prospects outside of North America, where its future was dimmed by lawsuits.
Because the BP deal was the first test of Rosneft’s Arctic policy, oil analysts were baffled over why the Kremlin allowed the agreement to unravel, given the region’s importance to Russia’s future oil production. The Kremlin officials who control Rosneft will decide how the company proceeds now, Mr. Nesterov said.
“The decision will be decided on the political level, and maybe after presidential elections,” he said. Those are scheduled for next year.
A spokesman for Prime Minister Vladimir V. Putin, Dmitri S. Peskov, characterized the breakdown in the agreement as “concerning the companies alone.”
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