BP seeking a compromise to salvage £10bn Arctic deal

BP was last night facing the prospect of having to renegotiate its $16bn (£10bn) share swap with Rosneft – a key plank in the oil giant's plans to explore for resources in an area roughly the size of the North Sea in Russia's Arctic continental shelf.

The possibility emerged as BP, Rosneft and the billionaire shareholders in BP's existing Russian venture, TNK-BP, attempted to strike a compromise before the swap agreement lapsed at midnight. In its current guise, the share swap would see Rosneft pick up about 5 per cent of BP, which in turn was going to acquire around 9.5 per cent of the state-owned Russian group.

The frenzied talks marked the latest twist in what was initially billed as a "global strategic alliance" between BP and Rosneft. But things began to turn sour when the billionaires who collectively go by the name Alfa Access Renova (AAR) accused BP of riding roughshod over the TNK-BP shareholder agreement.

AAR, which owns half of TNK-BP, secured an injunction blocking the plans. The two parties subsequently entered arbitration proceedings, with the tribunal ruling earlier this month that BP could proceed with the share swap if TNK-BP was allowed to play a part in the Arctic exploration.

Rosneft, however, has previously suggested that it would not want TNK-BP involved, arguing the venture did not have the requisite expertise in deepwater campaigns.

Last night's talks were aimed at smoothing out the issues. While the parties appeared to be far from reaching a compromise in time for the deadline, sources close to the discussions suggested an agreement was likely.

The delay was attributed to the complexity of the negotiations and the need to satisfy the three parties in light of the arbitration tribunal's ruling.

The talks are also politically sensitive due to the involvement of state-owned Rosneft, although a spokesman for the Russian prime minister, Vladimir Putin, suggested he would not get involved in negotiations to save the alliance.

"Prime Minister Vladimir Putin did not take part in the BP-Rosneft deal and is not going to take part in it," Mr Putin's spokesman Dmitry Peskov said yesterday. In the past, Mr Putin has expressed surprise at the snags since the deal between BP and Rosneft was first announced.

In addition to extending the share-swap deadline, one option on the table was for BP and Rosneft to strike an agreement to buy out the AAR billionaires, with sources close to the negotiations acknowledging discussions on the matter.

BP chief executive Bob Dudley has already attempted this before, offering between $27bn and $28bn for the AAR stake, with little success.

Talking to shareholders at the oil giant's annual meeting last month, he indicated the depth of the impasse when he said: "We have offered them participation in the Arctic. We have offered cash, we have offered participation to TNK-BP in international ventures and we have even jointly offered, with Rosneft, a fair offer for their company."

Although estimates this weekend suggested that AAR sell as part of a possible deal worth more than $30bn in cash and shares, Mr Dudley has in the past played down the possibility of offering much in the way of the oil giant's stock. "We are not going to offer large amounts or significant shareholdings in BP," he said last month.

BP and AAR declined to comment on the negotiations last night.