Tribunal Blocks BP/Rosneft Deal

BP's (NYSE: BP) hopes to partner with OAO Rosneft, Russia's largest oil company, to explore for oil in the Russian area of the Artic Circle suffered a major setback today when a Swedish arbitration tribunal blocked the $16 billion share swap between the two companies.

The tribunal's decision is a victory for TNK-BP, BP's joint venture with Russian investors. TNK-BP, Russia's third-largest oil producer, had sought to block the BP/Rosneft deal on the grounds that it violates the venture's shareholder rights agreement with BP, Europe's second-largest oil company. The tribunal also extended an injunction granted to TNK-BP earlier this year.

Under the terms of the share exchange, Rosneft would acquire 5% of BP for $7.5 billion and the two companies would partner to explore for oil in the Arctic region, which is believed to be home to tens of billions of barrels of oil reserves.

BP still wants to get the deal, but is facing potentially ugly options to appease TNK-BP. TNK-BP can now either muscle their way in on the Rosneft tie-up, pressure BP for rich compensation or prevent the U.K. major from completing it altogether, the Wall Street Journal reported.

When the deal was announced in January, it was viewed by industry analysts and insiders as quite an accomplishment for BP CEO Bob Dudley because Russian oil giants have previously been reluctant to allow their Western counterparts access to the Arctic region.

TNK-BP has said that it, not BP, should be Rosneft's partner on the proposed project, but Rosneft has publicly said it will not allow TNK-BP to be part of the venture and that TNK-BP lacks the experience to make a valuable contribution to the project.