Rosneft CEO, Igor Sechin, and BP's president for Russia, David Campbell, signed a deal for a joint-venture at the St.Petersburg International Economic Forum (SPIEF). The deal aims to explore the oil and gas potential of Siberian grasslands, specifically Rosneft's West Siberian and Yenisey-Khatanya basins. Additionally, the acquisition of seismic data, drilling of exploration wells and regional research as well as other exploration activities will be included in the venture.

BP will invest a total of $300m (£209m/€266m) in two phases towards the cost of Yermak Neftegaz's activities during the exploration stage, which looks set to begin around the winter of 2016. Rosneft, on the other hand, will provide operational experience, licenses and the ability to ensure its subsidiaries perform the necessary preliminary drilling activities.

ability to ensure its subsidiaries perform the necessary preliminary drilling activities. Both parties signal high hopes for this joint venture, which Sechin said will create a precedent that ''allows us to pursue cooperation in partnership with leading international companies to implement upstream projects at the largest Rosneft greenfield sites in West and East Siberia''. Campbell also explained that the venture ''reinforces BP's commitment to its strategic investment in Russia and its long-term partnership with Rosneft.''

A Strategic Investment?

Campbell's belief that this is a strategic investment is reinforced by the additional advantages of a joint-venture and partnership. For instance, a joint-venture provides companies with the opportunity to access new markets, specialised staff as well as technology. Further, companies can gradually separate a business from the rest of an organisation and eventually sell it to the other partner, ''roughly 80% of all joint-ventures end in sale by one partner to another.'' The partnership additionally solidifies a long-term binding of two parties that a joint-venture solely doesn't provide.

BP's recent overall success

BP also completed a joint-venture with Det Norske Oljeselskap which was signed earlier this month to merge their Norwegian businesses in a $1.3bn share deal. This share deal is aimed to cut costs, as well as to share all of the profits made. Further, the share deal is set to challenge state-controlled Statoil, which is responsible for 60% of Norway's oil and gas output. This new JV will be called “Aker BP”, which will form Norway's largest independent oil company, a shining beacon worth an estimated $6bn that will 'unlock the long-term value' in the declining Norwegian continental shelf according to Bob Dudley, BP's chief executive. David Campbell stated that ''BP will continue to seek attractive investment opportunities to develop Russia's substantial resources, whilst continuing to comply with international sanctions.''

Russia's retaliation to economic pressure

Recent reports contend that Russia could seize the assets of UK companies operating in Russia as retaliation against David Cameron's previous demands for tougher sanctions. Russia is being penalised due to its ongoing political tensions with Ukraine, until it 'decides to behave like a civilised country', according to Cameron. Despite the potential damage that could come from these sanctions, Dudley has no regrets about his decision to strengthen ties with Rosneft.

Fadel Gheit, oil analyst at Oppenheimer brokerage in New York, says that Russia has been one of the best investments ever made by BP. Although the probability of a decrease in the performance of this JV cannot be ignored, even BP mentioned that there could be future consequences.

It is a dangerous gamble, some would argue, but only time will tell of the potentially negative impacts this joint-venture could have financially and legally.

Definitions:

• *Joint Venture (JV): An association of two or more parties characterised by a shared ownership, risks, and governance while still maintaining distinct identities.
• *Share deal: Both parties in a deal agree upon the division of shares from the profits made.
• *Continental shelf: Underwater landmass which extends from a continent (in relation to Norway's declining continental shelf).
• *Basin: A dip in the Earth's surface, key source of petroleum and other fossil fuels (Rosneft's West Siberian and Yenisey-Khatanya basins).
• *St.Petersburg International Economic Forum (SPIEF): An annual Russian business event for the economic sector.
• *Yermak Neftegaz LLC: New joint venture between Rosneft and BP.
• *Subsidiary: A company controlled by a holding company.
• *Sanction: A penalty for disobeying a law or rule.

Sabrina Gonzalez Guidis |

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