BP Chief Executive Bob Dudley (L) looks towards state-run Russian firm Rosnefts President Eduard Khudainatov (R) before signing an agreement to form a global and arctic strategic alliance.
By Edward Tan, JANUARY 20, 2011
BP and Rosneft presented their $7.8 billion stock swap as solidifying an exploration alliance in Russias South Kara Sea.
The Rosneft deal, however, served another purpose for BP scaring off potential acquirers that might see the U.K. firm as vulnerable following its recent disaster in the Gulf of Mexico.
BPs new CEO, Robert Dudley, needs time to overhaul his companys safety program and rebuild its competitiveness in the global race for petroleum reserves. He doesnt need the distraction of, say, Royal Dutch Shell inquiring about a merger while BPs shares continue to trade 25% below pre-Deepwater Horizon levels.
Dudley simply wants breathing room to prove that BP is capable of recovering without help. Hes likely to get it: Any would-be buyer now has two companies to tangle with, one of them closely tied to the Russian state.
A BP spokesman denied that the swap with Rosneft was motivated by a desire to repel suitors.
What does Rosneft get in return? Funding for capital expenditures. Russian Deputy Prime Minister Igor Sechin said Russia would count on BP to provide the initial funding of $1.4 billion to $2 billion for exploring the South Kara Sea concession despite the fact that ownership of the South Kara JV is split 33% for BP and 67% for Rosneft.
Its no secret that Rosneft is interested in cutting a slimmer financial figure. A Rosneft representative confirmed the company reduced capital expenditures in 2009 from the previous year and has a goal of keeping net debt near 1x Ebitda.
It was also convenient that Rosneft had a billion treasury shares on hand, acquired through its absorption of Yukos Oil Company. These shares were swapped with BP as part of the deal.
This is not to say there is no strategic upside for BP. Rosneft was awarded five exploration licenses in 2010, with more expected over the next two years. This provides BP with ample opportunities to sink more money into possible future exploration efforts. But with Russian oil export taxes at roughly 50%, on top of an 18% mineral extraction tax and 20% corporate income tax, the returns from any Russian investment are well into the future. Furthermore, the joint venture does not expect to be drilling its first exploratory well until 2015 or 2016.
Fortunately, the stock swap with Rosneft has one clear-cut benefit in the short term. It provides protection from unwanted suitors as BP recovers its footing, for at least the two years that Rosneft has agreed to hold the stock.
This article originally appeared on Dow Jones Investment Banker. To find out more about the service please visit: www.dowjones.com/ib/
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Royal Dutch Shell conspired directly with Hitler, financed the Nazi Party, was anti-Semitic and sold out its own Dutch Jewish employees to the Nazis. Shell had a close relationship with the Nazis during and after the reign of Sir Henri Deterding, an ardent Nazi, and the founder and decades long leader of the Royal Dutch Shell Group. His burial ceremony, which had all the trappings of a state funeral, was held at his private estate in Mecklenburg, Germany. The spectacle (photographs below) included a funeral procession led by a horse drawn funeral hearse with senior Nazis officials and senior Royal Dutch Shell directors in attendance, Nazi salutes at the graveside, swastika banners on display and wreaths and personal tributes from Adolf Hitler and Reichsmarschall, Hermann Goring. Deterding was an honored associate and supporter of Hitler and a personal friend of Goring.
Deterding was the guest of Hitler during a four day summit meeting at Berchtesgaden. Sir Henri and Hitler both had ambitions on Russian oil fields. Only an honored personal guest would be rewarded with a private four day meeting at Hitler’s mountain top retreat.
IN JULY 2007, MR BILL CAMPBELL (ABOVE, A RETIRED GROUP AUDITOR OF SHELL INTERNATIONAL SENT AN EMAIL TO EVERY UK MP AND MEMBER OF THE HOUSE OF LORDS: 
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A head-cut image of Alfred Donovan (now deceased) appears courtesy of The Wall Street Journal.
