BP deal gets a muted thumbs-up from the City

The markets gave a cautious welcome to BP's $7.8bn (£4.9bn) share-swap and Arctic exploration deal with Russia's Rosneft last night.

The oil giant's shares rose by as much 3 per cent in early trading yesterday before closing only marginally higher by 1.2p to 500.7p, as investors digested the details that were unveiled late on Friday.

Over the weekend, the share-swap – which will see the Russian government, through its ownership of Rosneft, become the single largest shareholder in the British oil giant – was criticised by some US lawmakers who called for official scrutiny owing to BP's status as a major supplier to the country's armed forces.

The agreement will enable BP to carry out exploration activity in areas of the Arctic that have previously been restricted to Russian oil companies. But yesterday, BP's chief executive, Bob Dudley, said the US government had been informed before the tie-up was unveiled, and that the company would not need official clearance to proceed with the deal.

Analysts said that while the agreement gave BP access to potentially lucrative reserves in the South Kara Sea on Russia's northern frontier, investors were unlikely to see returns for many years.

Gordon Gray, an analyst at Collins Stewart, said: "The South Kara Seas is a frontier area with little infrastructure, and any discoveries would take many years to bring to production."

Mr Gray's counterparts at Jefferies said the share-swap suggested that, following the bruising oil spill disaster in the Gulf of Mexico, BP was now starting to refocus on its long-term future. Russia, they said, remained a key region, despite past problems stemming from its TNK-BP venture.

Iain Reid, at Jefferies, said: "There may also be further potential co-operation when further licences in the region are awarded in the future."

Meanwhile, analysts at UBS stressed the deal demonstrated that BP's ability to take risks with its strategy had emerged intact following the oil spill in the Gulf of Mexico. In a research note, they said: "One of the key dangers for BP is that, in the aftermath of the spill, it would either be nervous about doing deals, or that it would simply be blocked because of reputational issues. Neither appears to be the case."

Rosneft produces some 2.4 million barrels of oil equivalent (boe) per day, and has reserves of 15.15 billion boe. Russia's Rosneft delivered pre-tax of $8.52bn for the year to 31 December.

Energy analysts at VTB Capital said: "Rosneft would clearly benefit from BP's deep-water experience. The important condition of the agreement is BP's exploration commitments, which could imply material savings for Rosneft."