The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) -


(BP) - Get Report

should have seen this one coming.

An arbitration tribunal set up by BP's existing Russian partners blocked the $7.8 billion share swap deal proposed by BP with Russia's state-controlled Rosneft. The tribunal was set up at the behest of the



consortium, which is BP's partners Russia's third-biggest oil producer TNK-BP.

BP is the third largest of the six oil and gas supermajors after

Exxon Mobil

(XOM) - Get Report


Royal Dutch Shell


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Our price estimate for BP stands at $49.38, implying a roughly 5% premium to its current market price.

BP has been in rough waters since early 2010 when an explosion at the BP-operated Deepwater Horizon drilling rig resulted in the world's biggest oil spill. The spill lasted three months and resulted in almost 4.9 million barrels of oil leaking into the Gulf of Mexico. The spill has already


BP about $40 billion.

Earlier this year, BP's production figures took a hit when an oil leak discovered in the Trans Alaska Pipeline forced the company to reduce oil production from its operations in Alaska by 95%. We helped give a clear picture of the leak and the opportunities that exist in Alaska in a recent



The BP-Rosneft deal is a partnership to explore the Arctic region for possible reserves of oil. However, the deal conflicted with provisions included as a part of the TNK-BP agreement. The AAR consortium blocked the deal citing that the proposed deal would negate the competitive advantage that TNK-BP has in Russia. Now BP faces a wave of criticism within Russia for not alerting Rosneft of potential complications for its deal with BP.

Although the deal does not have any direct impact on BP in the short-run, it potentially leaves the window open for its competitors to step in and sign the deal with Rosneft, or at the very least, it could miss out on a deal that it wanted.

A long-term impact, considering an adverse scenario that BP is unable to add any new oil reserves, would be the gradual reduction in its oil and natural gas liquids production levels.

Assuming that the liquid production and sales estimate falls to 1.2 million barrels of oil daily from our current estimate of 1.37 million barrels, this would represent an almost 5% downside to BP's share price, bringing the share's value to just below $47.

See our full analysis and $49.38 price estimate for BP



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