BP & ROSNEFT: SHALE DEAL

BP confirmed its commitment to Russia after signing a shale oil deal with state-owned oil company Rosneft, despite US government-led sanctions against Moscow and the company's chief executive.

The contract was one of a string of deals signed in a ceremony at the finale of the now-controversial St Petersburg International Economic Forum by Rosneft boss Igor Sechin – as president Vladimir Putin looked on with a smile.

Mr Sechin, who was sanctioned by the US last month as a member of Mr Putin's "inner circle", laughed off the impact of the move, saying sanctions "don't seem so threatening any more".

The US had urged western companies to boycott the forum, Russia's equivalent of Davos. Most US chief executives avoided the meeting, but European energy bosses including BP's Bob Dudley, Shell's Ben van Beurden, Eni's Claudio Descalzi, and Total's Christophe de Margerie all attended, underscoring the desire of western companies to continue to do business in Russia in spite of sanctions.

The deal was signed ahead of presidential elections in Ukraine on Sunday, considered vital to rebuilding the legitimacy of the government in Kiev after the ejection of former president Viktor Yanukovich and amid a growing separatist insurgency in eastern Ukraine.

Russia's annexation of Crimea and encouragement of separatists in east Ukraine has led to a gradually tightening sanctions regime against individuals directly involved and president Putin's inner circle.

Mr Dudley, who attended a closed-door meeting with Mr Putin but did not personally sign the $300m contract with Mr Sechin, reaffirmed BP's commitment to Russia. BP owns a 19.7 per cent stake in Rosneft.

"I think it is important to come and to watch and listen," he said. "We have a responsibility to stand with our partners in difficult times."

He said he had not personally had any contact with the US government about his attendance of the forum. But another chief executive of a European company said Washington had "given us a really hard time" about attending.

The deal is the latest in a rush by western oil companies to join forces with Russian groups in order to take advantage of tax breaks for so-called "difficult oil" projects, which came into effect in September.

Also at St Petersburg, Total and Lukoil signed a joint venture to develop the Bazhenov shale. Talks on the tie-up had earlier been reported by the FT.

Older joint ventures include Rosneft's with ExxonMobil and Statoil, and the tie-up between Gazprom Neft, the oil subsidiary of Gazprom, and Royal Dutch Shell.

In a show of strength, Rosneft signed more than a dozen contracts on the final day of the forum. They included a multiyear contract to buy oil and products from Venezuela's state oil group, a move that will strengthen the Russian company's position as a third-party trader, and a deal to buy a "significant stake" in North Atlantic Drilling, a subsidiary of SeaDrill.

The Kremlin has made development of new types oil deposit – including shale, the Arctic, and fields in little-developed east Siberia – a priority amid declining production at older fields.

Addressing energy chiefs on Saturday, Mr Putin called on them to "move to new areas, often hard to access, or increase production at old fields ... and develop reserves that were traditionally considered economically less efficient and hard to reach".

"The challenges in the energy sector are clearly of global nature, and we can only meet them together, by means of co-operation. It is important that this is exactly what the major companies are doing," he said.

ft.com