BP's controversial $10bn (£8bn) tie-up with Rosneft was teetering on the brink of collapse last night as a deadline to complete the deal appeared likely to pass without agreement.
Without a last-minute extension, Russia's state-owned oil company will be free to look for other partners to help develop promising Arctic exploration blocks in the South Kara Sea. The exclusivity period written into the agreement, signed with great fanfare in January, is due to expire today. "The deadline has not been extended," a spokesman for Rosneft said in Moscow, amid reports that at least some insiders at Rosneft have concluded BP will have to be replaced as the company's development partner in the Arctic.
The agreement has been torpedoed by opposition from BP's existing business partners in Russia. Investors who have met Rosneft representatives in London in recent days were told that BP will almost certainly have to be replaced, it was said.
The difficulties with Rosneft come as BP's efforts to resolve the dispute with its existing Russian partners also came to nothing. The two sides failed to agree over the value of the TNK-BP joint venture, something that is a necessary precursor to agreeing a deal for one side to buy out the other.
The four billionaire oligarchs who own half of TNK-BP have fought against BP's Rosneft deal ever since it was proposed, claiming that it violates the TNK-BP shareholder agreement. A tribunal has already ruled that BP cannot pursue the Arctic exploration element of the Rosneft deal. The legal decision on whether a share-swap element can go ahead has not yet been reached.
With the exclusivity deadline looming, BP was desperately trying to broker a compromise to allow the plan to move ahead. The bulk of the talks with TNK-BP this week reportedly focused on the possibility of BP and Rosneft buying out the oligarchs' AAR investment consortium. As the discussions failed yesterday, each side accused the other of failing to suggest realistic terms for a sale.