Exxon-Rosneft deal a ‘painful’ reminder of BP’s Russia errors

An Arctic exploration deal between US oil giant ExxonMobil and Russia’s Rosneft is a reminder of BP’s (BP.L) failure to secure a similar agreement but will not intensify calls for a breakup of the UK group, a BP investor has said.

Under the deal signed on Tuesday, Rosneft, a state oil company, will give Exxon access to potentially substantial reserves in Russia. In return, the US group will give Rosneft stakes in projects in the Gulf of Mexico, onshore fields in Texas and elsewhere.

The agreement came after a $16 billion (£9.8 billion) share-swap deal to explore the Arctic between BP and Rosneft collapsed earlier in the year, following objections from shareholders in the UK group’s current Russian venture, TNK-BP.

Andrew Bell, chief executive of the £1.1 billion Witan Investment Trust, 1.7% of whose holdings are in BP, pointed out that the move was ‘salt in the wound’ for the group, as Exxon is one of BP’s global rivals.

Pointing out that BP’s management took over at ‘rather an unhappy time’ in the wake of last year’s Macondo oil spill, he said: ‘There’s a sense that there’s value in the stock, but there isn’t a sense of real strategic direction.’

Indeed, analysts have recently suggested that to boost shareholder value, the oil giant would follow ConocoPhillips, another US rival, in splitting itself into separate parts.

Yet Bell said the Exxon-Rosneft deal would not increase pressure for a demerger, since the ‘embarrassment’ over BP’s inability to reach an Arctic exploration agreement had already been felt. ‘All that does is remind them, rather painfully, that they made a big mistake,’ he added in a video interview with Citywire today.

In midday trading, BP shares inched down 0.2p to 398p, underperforming its sector and the wider London market. In the year to date, the stock has shed 15% of its value, also falling short of its peers.

MF Global branded the pact not a surprise but ‘clearly a negative’ for BP and to some extent Royal Dutch Shell (RDSb.L), which the broker believed was also competing for the deal.

‘For BP this draws a line under its ambitions to tie up with Rosneft and is somewhat bruising for CEO [Bob] Dudley, especially given the absence of a share swap,’ MF Global said. A controversial feature of BP's aborted deal gave Rosneft a 5% stake in BP, much to the annoyance of some shareholders. 

Meanwhile, BP suffered a fresh humiliation on Wednesday, when bailiffs raided its Moscow offices. The move was in connection with a lawsuit filed by the group’s partners in TNK-BP, Reuters reported a lawyer for minority shareholders in the partnership as saying.

BP is also top holding Derek Stuart’s Artemis UK Special Situations fund Mark Lyttleton’s BlackRock UK Dynamic, both Citywire Selection picks.