Rosneft on Tuesday shattered BP's hopes of exploiting Russian Arctic oil by pulling out of a planned joint venture with the British giant after losing patience with protracted negotiations.
Rosneft officials said the state-controlled Russian oil giant was now looking for a new Western partner following the failure of the two sides to resolve a row concerning BP's Russian joint venture before Monday's deadline.
The deal -- championed by Prime Minister Vladimir Putin -- was hailed as a breakthrough in Russian business ties with the West and a chance for BP to restore its reputation after the Gulf of Mexico oil spill.
But it appears neither side expected objections from a group of Russian oligarchs who own half of BP's existing Russian joint venture, TNK-BP. They argued that the deal breached their shareholder pact and blocked it in court.
BP and Rosneft sought to buy out the billionaires -- known collectively as AAR -- to end the crisis but the Russian firm tired of the conditions and price demands they set.
Rosneft board member Andrei Kostin said the company had been happy with BP as a partner but was now looking elsewhere.
"I don't think it's the end of the world," Kostin told CNN.
"If you can't make it with this partner, you can make it with another partner," Kostin said.
Rosneft -- forged into Russia's state champion from the ruins of the jailed Mikhail Khodorkovsky's Yukos oil firm -- has already been approached by the US multinational ExxonMobil and the Anglo-Dutch firm Royal Dutch Shell.
Rosneft finds itself sitting on some of the world's largest unexplored reserves while at the same lacking the expertise or equipment needed to tap that wealth and turn itself into a dominant international major.
BP for its part had been hoping to use the Russian tie-up to win back the support of shareholders who had turned an April meeting into a raucous show of their mounting frustrations with the company's management.
The Russian partners in TNK-BP became furious when the Rosneft agreement was struck without their agreement and successfully argued in court that they had a right of first refusal on any deal.
BP had spent weeks trying to buy the local billionaires out of TNK-BP in hopes of get around the dispute.
A source at Rosneft said the Russian company was also willing to contribute cash to the deal and that the two sides had by the end upped BP's initial $27 billion (19-billion-euro) offer by more than $5 billion.
The Russian partners "declined the offers even though there was a premium placed on the price," the Rosneft source told AFP.
The deal's collapse seemed to catch both the British firm and its Russian partners off guard.
"We plan to continue discussions about potential collaboration among BP, Rosneft and AAR," the joint venture's Mikhail Fridman said in a statement that was issued only moments after Rosneft announced the tie-up's rupture.
The news meanwhile sent BP shares up one percent in London on investor relief that it would no longer be paying a premium on a deal whose immediate rewards seemed uncertain and depended in large part on the whims of the Russian state.
The fate of Russia's oil exploration now depends on how fast Rosneft is able to find a partner willing to assume the same share of development costs as did BP.
"No one is willing to work (in the Arctic) on the same terms as BP did," Univer investment house analyst Dmitry Alexandrov told RBC. "I doubt that the large American companies ... would agree to do it."
TNK-BP board member Alexander Shokhin said he expected Rosneft's three northern fields to be now split up between competing partners who each work on their own terms.
"The Arctic projects can be developed without an alliance," he said.
Putin's spokesman for his part brushed off speculation that BP's troubles in Russia might make it difficult for Rosneft to find a new partner.
Source: AFP Global Edition