BP Enters into Acquisition Talks with Rosneft

Published at 12:16PM - 30/12/14

BP has entered into negotiations with Rosneft, the Russian state-owned energy company, to acquire a stake in an Eastern Siberian oil field. The news comes from a range of sources who are involved in the talks.

What is being discussed is the Taas Yuriakh field, which joins to an oil pipeline that connects to the country’s Pacific Coast. This allows refineries in the Far East of Russia and other areas of the Asia-Pacific region, such as China, to receive a direct supply.

In two years time, the field will be producing over 100,000 barrels daily. Additionally, it contains around 155 billion square metres of natural gas, according to scientific estimates. If successful in its acquisition, BP could gain a stake in the field that would be worth up to $700 million, according to Kommersant, the Russian business publication which broke the news on Christmas Eve.

Russia’s government has a majority ownership stake in Rosneft, but BP holds almost 20pc. Furthermore, it has remained committed to the company despite ongoing economic and political sanctions imposed on the Kremlin in a bid to damage its oil industry in the wake of unrest in Ukraine. The sanctions are being imposed by the EU and the USA, and some have suggested that the recent drop in oil prices could be part of a bigger political move to destabilise Russia, which relies heavily on oil and natural gas sales for its economic success.

The sanctions are forbidding Russian oil businesses to buy Western-derived technologies for offshore oil and shale production, as well as strongly limiting the country’s access to financial markets in the West for financing deals. However, the sanctions do not prevent Western businesses from investing in Russian assets such as oil fields. This means that any deal between BP and Rosneft will be exempt from the sanctions already in place.

Oil and gas sales represent around 50pc of Moscow’s total yearly budget, and the government has been keen to further grow sales of Russian hydrocarbons in the East as Western customers keep away from the market, particularly in the EU, which feels that Moscow is unable to provide a secure and reliable energy supply. Customers in the EU now only receive around 33pc of their gas supplies from Russia, of which 50pc is piped via Ukraine.

However, if BP does ultimately purchase an ownership stake in Taas-Yuriakh, it would greatly help Rosneft’s current financial position, which is struggling in the face of the stiff sanctions and plummeting price of oil. The company reported that its net debt now stands at $45 billion.

An involvement from BP would also bring benefits in field exploitation and efficiency and help to minimise any delays in either exploration activities or production. This is the conclusion of analysts based at Sberbank in Russia, an institution owned primarily by the Russian government with a strong savings business. If this is the case, the acquisition could provide Rosneft with real confidence and remove several factors of concern for its owners. Additionally, the sale could provide BP with a strong potential revenue stream and a profitable new line of business.

Last updated on 12:49PM - 01/01/15