BP, Partners Meet in Middle on Rosneft Deal

NEW YORK (TheStreet) -- BP(BP) said on Friday that its threatened Arctic exploration deal with Russia's Rosneft has been issued a consent order permitting BP and the Alfa-Access-Renova (AAR) -- BP's partner in TNK-BP -- to assign the Arctic opportunity to TNK-BP, subject to Rosneft consent.

BP's partners in TNK-BP -- a massive natural gas venture -- had gone to court to stop BP from entering the Rosneft deal, citing its existing contract with BP and right of first refusal.

The Rosneft-BP headlines have pressured BP shares, as the Arctic exploration deal has been viewed as a key long-term growth driver for BP production, especially after it sheds assets to pay oil spill liabilities.

BP shares rose more than 3% on Friday, though all energy stocks and the major oil companies were rising after the heavy selling all week in energy shares and the massive decline in crude oil prices. Action in BP shares was elevated on Friday morning, with its U.S.-traded ADR shares nearing full day volume of 9 million shares traded before the mid-day mark.

The BP statement on Friday said that the court order permits the proposed share swap between BP and Rosneft to proceed subject to Rosneft having consented to assign the Arctic opportunity to TNK--BP.

Given the pressure under which the negative Rosneft headlines had kept BP shares, a 3% gain on Friday wasn't much of a rally, especially as the energy sector gained by and large. Part of the reason for the lack of a larger move in BP shares could be that the devil is still in the details relative to the agreement, and at a basic level, it's likely that the compromise is less lucrative to BP.

Argus Research analyst Phil Weiss said that the agreement isn't ideal, but that at least it lets BP move ahead, rather than face the risk of losing the Arctic deal to a competing oil major. However, Weiss also noted that unresolved is how both deepwater drilling technology and financial gains from the Arctic drilling would flow through TNK-BP.

"This deal is about deepwater exploration expertise and TNK-BP doesn't have that," Weiss said, adding that this raises the issue of whether BP is compensated in some manner for intellectual property. Further, BP doesn't own all of TNK-BP, so it's not clear how BP is compensated in this new arrangement, such as a cash dividend. It's also not clear how the actual oil produced would flow through to BP in this deal. Under the current TNK-BP arrangement, BP only gets credit for a share of the production.