Equity Swap Sends BP Shares Surging

BP’s shares have risen in London as investors get their first chance to respond to the petroleum company’s share-swap and Arctic exploration deal with Rosneft.

In early trading, BP’s shares were up 2 per cent at 510p. Analysts view the deal as a canny move by BP that could give the company access to huge undiscovered oil reserves.

‘Although we see the transaction as initially dilutive on earnings (perhaps by 4 per cent in 2011), we see the arrangement as significantly de-risking BP’s existing activities in Russia and giving the company material access to one of the most prospective areas of the offshore Arctic (a major coup in terms of competitive positioning),’ say analysts at UBS. ‘Hence we see the deal as potentially adding considerable value.’

The deal – announced on Friday evening, UK time – will see BP and Rosneft swap equity stakes and collaborate on an exploration project in the Arctic region.

Following the agreement, Rosneft will hold 5 per cent of BP’s ordinary voting shares. In return, BP will get 9.5 per cent of Rosneft’s shares. As a result of the deal, the Russian government will become one of BP’s largest shareholders, because Rosneft is 75 per cent owned by the Russian state.

Since being revealed on Friday, BP’s partnership with Rosenft has drawn criticism from a variety of sources. US congressman Ed Markey put out a statement on Friday saying the tie-up should be examined in case it ‘affects the national and economic security of the United States.’

‘BP once stood for British Petroleum. With this deal, it now stands for Bolshoi Petroleum,’ Markey said.

Meanwhile, billionaire partners in BP-TNK, a joint venture between BP and Russian oligarchs, are examining whether the deal violates the terms of their agreement, reports the Financial Times.

Environmentalists have also attacked the proposal, as it will see drilling take place in the Arctic region.

‘The Arctic is the world’s most fragile environment for oil exploration, while its ice sheet is melting rapidly due to climate change,’ says Charlie Kronick, Greenpeace’s UK senior climate adviser, in a statement. ‘Any company that drills for oil there forfeits any claim to environmental responsibility.’

‘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.’

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