BP's hopes of making the Arctic a key part of its recovery plan were dealt a major blow today by the failure of a share swap and exploration deal with Russian oil group Rosneft.
Talks to broker a settlement with TNK-BP, its existing Russian partner, which had blocked the deal, ended without agreement, meaning the UK firm missed a midnight deadline set by Rosneft to get the deal back on track.
BP said discussions would continue between all of the parties, but observers say the failure to conclude a deal could leave the way open for rival oil companies to take its place.
It also leaves a potentially huge hole in plans by new chief executive Bob Dudley to turn around the group following the Gulf of Mexico disaster last year.
The announcement is the latest twist in a protracted saga that started in January when BP and Rosneft announced an £8 billion share swap that also included exploration rights for the Arctic's Kara Sea.
Amid much fanfare, Mr Dudley hailed the Rosneft deal as "historic" and "groundbreaking", with analysts also praising the group for pulling off what was seen as a significant coup for the group after its US problems. Huge oil reserves are thought to lie under the Arctic Circle.
The deal was subsequently scuppered after TNK-BP successfully claimed it breached an earlier agreement that it had to be included in deals undertaken by BP in Russia.
The talks yesterday reportedly involved an £18.5 billion buyout of TNK-BP. It is owned by a consortium of Russian billionaires called Alfa Access Renova (AAR), who would have got cash and substantial stakes in both BP and Rosneft if a revised deal had been concluded.
Today BP said it was still hopeful a deal can be struck, adding it would intensify its efforts to ensure TNK-BP's continued success.
"In recent months, BP has conducted detailed negotiations with AAR and Rosneft to seek a reasonable and businesslike solution that would allow the agreements to proceed to the satisfaction of all parties. Such a solution has not been found at this time, although talks will continue," it said in a statement.
Mr Dudley added: "BP remains committed to Russia, to working constructively with AAR in TNK-BP and to our existing good relationship with Rosneft."