BP Plc (BP) has put to rest the speculations regarding its plan to exit a joint venture with Russian state-owned oil company OAO Rosneft, off the country’s Far Eastern Coast. The U.K.-based energy producer confirmed that it will terminate its 13-year partnership with Rosneft to explore oil and gas in Sakhalin, partly blaming the rough economics of the project.
BP added that it is trying to settle its exit in the best possible manner without causing any further inconvenience to Rosneft. Following this sudden development, Rosneft has been left alone to proceed with Sakhalin 5 development.
BP has claimed that there are various reasons for its decision to pull out of the joint venture, including the difficult economics of the discovered resource in the Kaigansky-Vasuykansky (KV) block. On the other hand, Rosneft has stated that it is very keen on this project and is not willing to offer it to anyone else.
Spread across an area of 6,000 square kilometer, Sakhalin is a rich source of energy with harsh and challenging operating environment. BP forges an exploration alliance with Rosneft in 1998, with an initial license to explore for hydrocarbons in Kaigansky-Vasuykansky area approved in 2002. The following year, BP and Rosneft formed a joint venture – Elvary Neftegaz, before beginning drilling operations in 2004.
In January 2011, BP agreed to a $16 billion pact with Rosneft for the exploration of three Arctic offshore licenses but pulled out of the deal midway due to legal issues. Subsequently, Rosneft formed a global partnership with oil major ExxonMobil Corporation (XOM).
BP remains focused on a string of upstream activities. We believe that its new strategy of active portfolio management, higher exploration activity with additional precautionary actions as well as refining and marketing repositioning will create value for shareholders.
BP holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock.
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