Rosneft brings BP one of the largest untapped reserves

BP Plc’s deal with Russia’s state-controlled OAO Rosneft may give the UK driller access to one of the largest untapped oil troves left on earth.

Seismic work indicates the three Arctic blocks BP will explore with Rosneft may have as much as 50 billion barrels of oil in place and between 12 billion and 15 billion barrels of recoverable crude, said a person with knowledge of the matter, declining to be identified because the data are confidential. By comparison, about 23 billion barrels have been pumped from the UK sector of the North Sea in the last four decades.

BP agreed last week to exchange $7.8 billion of its equity for a 9.5 per cent holding in Russia’s largest oil producer. As part of the accord, the two companies will explore a 125,000 square-kilometre area of the Kara Sea, north from Russia’s largest developed fields in West Siberia.

“BP’s interest in the petroleum potential of the Kara Basin stems from a number of key geological features,” said Mike Daly, BP executive vice president for exploration, who declined to give an estimate of potential reserves. “The Kara Basin is the northerly, offshore extension of the West Siberian Basin. Regional seismic data shows the basin to have a number of very large structures.”

BP shares rose as much as 2.5 per cent in London and traded at 507.6 pence as of 9.55 am local time. Rosneft rose as much as 4.8 per cent in Moscow to the highest since April.

More oil than gas
BP is particularly attracted to the area because the three licence areas in question are likely to contain more oil than gas, the person said. That would allow the company to avoid working with OAO Gazprom, which has a monopoly on gas exports. London-based BP thinks the two northernmost licence areas, EPNZ-1 and EPNZ-2, overlie oil-bearing rock, he said.

The strategic alliance between BP and Rosneft is the outgrowth of a 12-year relationship between the two companies that has included exploration drilling off Sakhalin Island in the Russian Far East and a five-year-old agreement to do scientific research in the Arctic. Several wells have been drilled off Sakhalin, where Shell and Exxon Mobil have large producing fields, but BP and Rosneft have yet to find oil and gas in commercial quantities.

The joint efforts have deepened ties between the two companies, leading to last week’s deal. The arrangement agreed to is the first major cross-shareholding between one of the world’s largest private-sector oil companies and a state-owned producer.

TNK, US Congress
BP Plc’s billionaire partners in existing Russian oil venture TNK-BP said today they “welcome” the project. The deal is also good for Russia “and potentially for TNK-BP,” though TNK wants more information, said Stan Polovets, the chief executive officer of AAR, which represents the partners.

The deal has attracted criticism in US Congress. Representative Edward Markey, a Massachusetts Democrat, called for an investigation of the swap and said that BP now stands for “Bolshoi Petroleum”.

“This is an industry-changing event because BP and Rosneft have embraced a degree of reciprocity unique in the global oil and gas industry,” said Philip Lambert, CEO of Lambert Energy Advisory, which advised BP on the transaction.