Moody’s: BP-Rosneft collapse will hurt TNK-BP as much as BP

We all knew that the collapse of BP’s deal with Rosneft to drill in the Arctic was more damaging for BP than it was for its Russian prospective partners.

For BP, the deal represented the chance not only to tap the significant Arctic resources for which Rosneft holds licenses, but also a chance to diversify away from the Gulf of Mexico, and to show the world it can still drill safely in difficult places, even after last year’s spill.

But Rosneft, while preferring the technical skills BP had to offer, still has plenty of options on the table. Big oil companies are lining up to take BP’s place and exploit the Arctic’s resources themselves. And none of them bring the baggage of existing Russian partners who could get in the way.

Moody’s shares these conclusions, and has put out a report saying that the collapse of the deal is credit negative for BP, but neutral for Rosneft. It says:

The high-profile tie-up would have afforded BP an opportunity to demonstrate its exploration skills and technological expertise, an important step toward repairing its reputation after the Macondo disaster, and to secure a major partnership with the host government of oil-rich Russia and one of Russia’s national oil companies.

BP’s ability to pursue growth initiatives in Russia is curtailed until it resolves its differences with its current Russian partners.

But:

The demise of the strategic partnership is credit neutral for Rosneft… Other international majors with expertise in off-shore drilling, such as ExxonMobil Corporation (Aaa stable), Chevron (Aa1 stable) and Royal Dutch Shell plc (Aa1 stable), could fill the gap.

Interestingly though, the report also says the deal’s demise is credit negative for TNK-BP. It says that the spat between BP and AAR, the Russian backers of TNK-BP, that frustrated the tie-up could exacerbate tensions between the two parties and make it difficult for them to agree a joint growth strategy in the long-term.

While immediate profits are not under threat, the report says:

These recent events… again raise the question of the strategic development and long-term sustainability of TNK-BP, even though both parties continue to share in the benefits accruing from the strong operational performance and healthy financial results of the joint venture, which we do not see affected at this stage.

It is not far fetched to imagine that it will be difficult for these partners to work together after such a public falling out. If so, by opposing BP’s deal with Rosneft, AAR’s backers may have found they have done themselves as much damage (at least as far as their interest in TNK-BP goes) as they did to BP.

 

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