BP PLC (NYSE ADR: BP) on Friday announced it was entering a $16 billion share swap deal with Russian oil industry giant NK Rosneft OAO (PINK: RNFTF). The deal will give BP access to areas of the Russian Arctic that were previously off limits to foreign companies, but it will come at a political cost.
The deal involves BP swapping 5% of its shares, valued at $7.8 billion, for 9.5% of state-controlled Rosneft's shares. The British oil company already owns a 1.3% stake in the Russian business. BP Chief Executive Officer Robert Dudley said the deal is the first cross-shareholding between a Russian state-owned national oil company (NOC) and western oil giant, and called the move "a new template for how business can be done in our industry."
The joint venture will make Rosneft the largest single BP shareholder. Their newly formed joint operating company will be two-thirds owned by Rosneft and one-third owned by BP. It will spend up to $2 billion in an initial phase of testing and well-drilling.