BREAKINGVIEWS - Exxon's Russian coup rubs salt in BP's wounds

Wed Aug 31, 2011 12:26am IST

A Mobil gas station is seen in Medford, Massachusetts April 30, 2008. REUTERS/Brian Snyder/Files

A Mobil gas station is seen in Medford, Massachusetts April 30, 2008.

Credit: Reuters/Brian Snyder/Files

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Jason Bush

MOSCOW (Reuters Breakingviews) - BP's pain is Exxon Mobil's gain. Just months after the collapse of BP's much-hyped tie-up with Russia's state oil company Rosneft, the UK energy group's U.S. rival has swooped in on the deal. Although not without risks, the latest agreement is a coup for Exxon -- and a fresh blow to BP as it struggles to contain the damage from its Russian debacle.

There's little hiding BP's humiliation. The Arctic reserves in question are the very same fields that were to be subject of the original BP-Rosneft tie-up. But in contrast to that partnership, with its proposed $16 billion share swap, Exxon and Rosneft are not talking about swapping equity. Instead, Exxon is offering Rosneft access to some of its projects in the Gulf of Mexico.

Exxon, in effect, has been the lucky beneficiary of chance circumstances. Rosneft's embarrassment following the collapse of the BP deal has enabled the Americans to enter on more favourable terms. While the Russians love the idea of share swaps, the Western partners are keen to get access to Russia's vast reserves -- but not so keen on getting Russian owners.

There's always the risk of a hidden obstacle. But Exxon is unlikely to face anything like the difficulties that scotched BP's deal. These resulted mainly from BP's terrible legal preparation and political misjudgements. Still, any investment in Russia can encounter snags. While Russia is eager to attract Western partners now, there's the danger of it revising terms in the future. And searching for oil in the remote and inhospitable Arctic is an uncertain business -- the envisaged $3.2 billion in exploration costs could overrun. Exxon shares have not exactly leapt with excitement: they were down about 0.8 percent in early afternoon trade on Tuesday.

On balance, though, Exxon looks like an eventual big winner, gaining access to sought-after acreage with an estimated 110 billion barrels of oil equivalent in reserves. Rosneft can be happy, too, that it is getting access to both Exxon's offshore expertise and North American projects. The only big loser is BP. Not only is its deal with Rosneft now over, but Rosneft is under little pressure to discuss possible alternative projects any time soon. BP's botched Russian strategy has cost it more than just some upside.

CONTEXT NEWS

-- Russia's top crude producer, Rosneft, and U.S. Exxon Mobil signed a strategic agreement on Aug. 30 to jointly develop oil in the Russian Arctic. Under the deal, Exxon and Rosneft will invest $3.2 billion in developing East Prinovozemelsky Blocks 1, 2, and 3 in the Arctic Kara Sea and the Tuapse licensing block in the Black Sea. Rosneft, meanwhile, will be offered an equity interest in a number of Exxon exploration projects in North America, including deep-water Gulf of Mexico and tight oil fields in Texas, as well as in other countries.

(Editing by Chris Hughes and Emily Plucinak)

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