Breakthrough at last for BP in Russian stalemate

BP appears to be on the verge of salvaging a hugely controversial deal to explore the Arctic Ocean after finally agreeing a compromise with the Russian business that has been threatening to wreck the project.

BP announced in January that it had agreed a joint venture with Rosneft, Russia's biggest oil company, to explore the country's Arctic waters.

But the plans went on hold after TNK-BP, the Russian business in which BP has a 50 per cent stake, said its contract with BP gave it first refusal on any new ventures in the country the British company wanted to pursue.

An arbitration panel subsequently upheld TNK-BP's case. The stalemate has been hugely embarrassing for BP, which had promised its agreement with Rosneft would transform its future.

The dispute has also undermined shareholders' faith in Bob Dudley, appointed BP's chief executive last autumn when Tony Hayward quit the role following the Deepwater Horizon scandal in the Gulf of Mexico.

Yesterday, however, BP said it had now agreed to step down from the exploration deal, with TNK-BP taking its place. BP would still have access to the oilfields of Russia's Arctic Ocean, in an area about the same size as the North Sea, but without cutting TNK-BP out of the project. As part of the compromise, TNK-BP agreed to drop its objection to a $16bn (£9.6bn) share-swap deal that BP and Rosneft agreed at the same time as the exploration project.

Under that agreement, BP had expected to take a 10 per cent stake in Rosneft, with the Russian company acquiring 5 per cent of the British firm.

A spokesman for BP described the announcement as "a step in the right direction". Stan Polovets, chiefexecutive of AAR – the group formed by the Russian investors who own the other 50 per cent of TNK-BP – added: "We see the Arctic transaction with Rosneft as a great opportunity for TNK-BP and for Russia, which we would like to succeed."

The compromise will need to be approved by Rosneft, which made no comment yesterday. Like BP, the Russian company has previously said it is opposed to TNK-BP becoming involved in the exploration project. Rosneft will also have to accept strict rules governing its share swap with BP, which yesterday's agreement said could be undertaken for "investment purposes only".

Neither company would be allowed representation on the board of the other, a goal that many analysts believe Rosneft in particular is interested in pursuing. Nevertheless, the fact that BP has been able to reach a settlement with TNK-BP – with whom relations have often been extremely difficult – will be seen as a breakthrough. The British company's shares rose by more than 3 per cent yesterday.