Russian state-owned oil giant Rosneft buys 5% of BP in Arctic drilling deal

NOVO-OGARYOVO, Russia -- Russian Prime Minister Vladimir Putin says London-based oil giant BP and Russia's largest oil company Rosneft will work together to develop Russia's energy-rich continental shelf. Deal with Russians worth $18bn hands BP chance to explore for oil in Arctic

BP last night unveiled a risky gamble to build a new future for itself in the Russian Arctic by agreeing an $18bn exchange of shares with the Kremlin's favourite oil company.

The deal to transfer 5% of BP ownership to Rosneft immediately came under attack in America – currently its most important market – with one congressman describing BP as "Bolshoi Petroleum".

The tie-up, which also gives BP a 9% stake in Rosneft, will also be controversial because the two companies are to concentrate on developing reserves in the pristine waters of the Russian Arctic.

BP is having to look east after a damaging run of accidents in the US, most notably the Deepwater Horizon disaster, for which it has been bitterly criticised for lax standards.

Bob Dudley, the new BP chief executive brought in to clean up the business after the Gulf of Mexico spill, said the move was "not any reaction to anything happening in the US". He declined to comment on adverse reactions to the Russian deal in America and said the lessons learned from the Macondo well blowout left it well-placed to work in the Arctic.

The political nature of the deal was underlined by the presence of Britain's energy secretary, Chris Huhne, and Igor Sechin, Russia's deputy prime minister, who attended the signing in London with Dudley.

Shares in BP rose 4% last night just before the close of trading on Wall Street as details of the deal leaked out.

Dudley said he was delighted with the deal despite his own difficult experiences in Moscow when he was chief executive of a second joint venture, TNK-BP. He was hounded out of Russia due to a bitter row with the Russian shareholders in the venture.

"We are very pleased to welcome Rosneft as a strategic partner and major shareholder in the BP group," he said last night.

Sechin said the arrangement showed "global capital and Russian companies are clearly ready to invest in world class projects in Russia; and Russian companies are quickly emerging at the forefront of the global energy industry."

Rosneft, of which BP will now own 9.5%, is looking to expand beyond Russia. Just over 75% of Rosneft's shares are in the hands of the Russian government.

While Barack Obama promised to "keep his boot on the neck of BP" as he kept up a tide of anti-BP rhetoric during the height of the crisis last summer, in contrast, Putin has been supportive of BP over the Gulf of Mexico crisis. Sources close to former chief executive Tony Hayward said that the Kremlin was angry at the company's treatment in the US following the spill.

BP already owned a 1.2% stake in Rosneft, which listed in London in 2006. Its stock market valuation is $83bn (£52bn), compared with BP's $150bn.

Rosneft's listing was controversial because it acquired many of its assets from Yukos, the former Russian oil giant which jailed oligarch Mikhail Khodorkovsky had run, for a knockdown price in 2004.

BP has a target to raise about $30bn in asset sales to help pay all the costs associated with the Gulf of Mexico spill, but it has already netted over $20bn.

The deal will further strengthen BP's recovery from last April's fatal explosion of its Deepwater Horizon rig in the Gulf of Mexico, which resulted in the death of 11 workers and the world's largest-ever accidental offshore oil spill.

Obama's national commission, set up to investigate the causes of the disaster, while heavily critical of BP, also blamed a complacent industry and inadequate regulation. Analysts said that this made it easier for BP to escape the charge of gross negligence, which some analysts believe would result in a bill of $79bn.

Greenpeace said last night: "The Arctic is the world's most fragile environment for oil exploration, while its ice sheet is melting rapidly due to climate change. Any company that drills for oil there forfeits any claim to environmental responsibility. BP has done little to address the issues raised by the Deepwater Horizon disaster, while last year the Greenland government refused to grant drilling concessions to the company because it wasn't convinced BP has rigorous enough safety protocols. Now BP has bought its way into the Arctic by the back door. It seems the company learned nothing last year in the Gulf of Mexico."

BP finally connects mile-long pipe to begin capping oil spill

Oil giant BP succeeded Sunday in connecting a mile-long pipe to help capture oil flowing into the Gulf of Mexico from its damaged well, "an important step" toward capping the massive spill, the company said, but not a complete solution.

The company initially connected the tube overnight, collecting some oil, gas and water, but then the tube was temporarily dislodged. It was reconnected on Sunday morning.

"We are restarting the operation now'' to siphon oil from the ocean floor to a ship 5,000 feet above where it can be stored temporarily, BP spokesman David Nicholas said.

The effort doesn't plug the massive oil leak that began on April 20 when an offshore rig caught fire and sank, but it's the first successful attempt in almost a month to begin capping the erupting flow. A similar effort had failed on Saturday.

The tube "is fashioned from a 4-inch pipe and is inserted into the leaking riser, from which the majority of the flow is coming. While not collecting all of the leaking oil, this tool is an important step in reducing the amount of oil being released into Gulf waters," said a statement from the Deepwater Horizon Incident Joint Information Center.

Methanol, a kind of antifreeze, will be put into the riser to stop gas crystals from forming, which could block gas and oil from flowing to the ship. Crystals got in the way of a previous attempt to lower a 100-ton containment cap over the leak site.

The surface ship will separate the oil, gas and water mixture for storage and eventual offloading. Overnight, some of the collected gas was burned through a flare system on the ship.

Meanwhile, reports of huge submerged oil plumes raised fears of more ecological damage to the Gulf and raised questions about when large amounts of crude might hit shore. Tar balls have washed up sporadically on beaches in several states, but oil hasn't come ashore in big quantities.

Researchers from the National Institute for Undersea Science and Technology said they had detected the underwater oil plumes at depths from just beneath the surface to more than 4,000 feet.

Three or four large plumes have been found, and at least one is 10 miles long and a mile wide, said Samantha Joye, a marine science professor at the University of Georgia.

Researchers Vernon Asper and Arne Dierks of the National Institute for Undersea Science and Technology at the University of Southern Mississippi said in web posts that the large plumes were "perhaps due to the deep injection of dispersants."

The researchers also were testing the effects of large amounts of subsea oil on oxygen levels in the water. The oil can deplete oxygen in water, harming plankton and other tiny creatures that serve as food for a wide variety of sea creatures.

Oxygen levels in some areas have dropped 30 percent and should continue to drop, Joye said.

The Environmental Protection Agency gave BP the go-ahead on Saturday to use dispersants, chemicals that break the oil into small droplets and keep it from rising to the surface.

"It appears that the application of the sub-sea dispersant is actually working," BP Chief Operating Officer Doug Suttles said. "The oil in the vicinity of the well is diminished from previous observations."

At least 210,000 gallons of oil have been gushing into the Gulf each day since the Deepwater Horizon exploded on April 20, and some independent scientists think the leak may be 10 times that bad.

Environmentalists — and some leaders in the fishing and oil-spill cleanup industries _have raised concerns about the chemical dispersants.

"Cosmetically, it makes it seem that the oil has gone away," said Tom Manton, the retired president and CEO of the International Oil Spill Control Corporation. "But the

oil doesn't go away. It ends up in small drops, either on the beach or on the seabed...In

many cases, the dispersants are more polluting to the water than the actual oil is."

The EPA and Coast Guard, however, say that the dispersants are "generally less harmful" than oil and will biodegrade in a shorter time span.

Technicians had tried to stop the leak Saturday by guiding a six-inch-wide tube with a rubber stopper into the broken undersea pipe. But they had trouble connecting the tube to an oil tanker on the surface, and had to bring the apparatus back to the surface.

"The challenge here is working with 5,000 feet of water," Suttles said.

On Sunday, BP succeeded using a four-inch-wide tube.

Officials have not ruled out another potential solution called a ''junk shot." That entails shooting golf balls, shredded tires, knotted pieces of rope and other types of debris into the blowout preventer to clog the leak.

Read more: http://www.miamiherald.com/2010/05/16/v-fullstory/1632437/bp-finally-connects-mile-long.html#ixzz0o7gkJmEe