ern's: US hostility to BP-Rosneft deal grows

Politicians voice fears over Alaska pipelines, Gulf payouts and risk of Kremlin influence on major supplier to US military

Britain's leading oil company, BP, is facing hostility and suspicion from the US over an alliance with the Russian state oil firm Rosneft that opens up vast areas of untapped wilderness off the coast of Siberia and beneath the Arctic shelf.

Endorsed by both countries' prime ministers, David Cameron and Vladimir Putin, the tie-up gives Rosneft a 5% stake in BP, while the London-based company will increase its stake in the Russian firm from 1.3% to 10.8%. It will give the Kremlin a slice of ownership of BP's global operations, which stretch from Alaska to the Gulf of Mexico, north Africa, Azerbaijan and the North Sea.

BP's chief executive, Bob Dudley, hailed the arrangement, signed on Friday night, as a "historic moment for Rosneft, the BP and for the global energy industry generally", and described it as a "new template" for the way international oil exploration can take place. Russia's deputy prime minister, Igor Sechin, who chairs Rosneft, suggested that among BP's attractions were "knowledge and experience" accrued from last year's disastrous Deepwater Horizon oil spill in the Gulf of Mexico.

The move, which involves BP issuing 988m new shares to Rosneft worth �4.9bn, has gone down badly in the US, coming just days after a presidential commission published a damning report on the blunders leading up to the Deepwater spill. In Washington, the US state department is facing calls to investigate whether the Russian government's links with BP posed national security issues.

"There are various different levels where this deserves some analysis and some scrutiny," said Michael Burgess, a Republican congressman who sits on the House energy and commerce committee. "BP is one of the biggest suppliers to our military. Are there national security implications to this deal?"

Burgess pointed out that BP runs sensitive trans-Alaskan oil pipelines and that the group's BP America subsidiary is regulated as a US company. Comparing the deal to the blocked purchase by Dubai Ports World of P&O's US ports in 2006, he called for an inquiry by the US government's committee on foreign investment, which is chaired by treasury secretary Timothy Geithner and has a mandate to scrutinise potentially threatening financial incursions into the US.

His remarks followed comments by a Democratic congressman, Ed Markey, who suggested BP now stood for "Bolshoi Petroleum" and claimed that the Rosneft tie-up could complicate the collection of compensation for the fishing industry hit by the Deepwater spill.

BP's eastward manoeuvre puts the British company in pole position for exploration of more than 125,000 sq km of potentially oil-rich seabed beneath the South Kara Sea off the coast of western Siberia ? an area the size of the North Sea. The Russians are keen to get their hands on BP's technical expertise, and co-operation will be extended to ventures off the north-eastern frontier of Siberia and even in oil refineries in Germany. The two partners will establish an Arctic technology centre to develop new techniques for the safe extraction of oil.

"This has the blessing of the Russian government for BP to get access to some additional resource," said Philip Weiss, an energy analyst at Argus Research. "Because of the uncertainty in the Gulf [of Mexico], that's probably even more important for BP."

Any exploration in the Arctic, however, will face opposition from environmentalists. Charlie Kronick, senior climate adviser to Greenpeace, said: "There's a view from the oil industry, and from governments too, that we absolutely have to go for every last drop of oil, regardless of how damaging it is to get out."

Pointing to the Russian government's 75% stake in Rosneft, he added that politics and business are "very, very closely bound" in Russia, which could put BP in a sensitive position in the event of future posturing on energy by the Kremlin, which cut gas supplies to Ukraine two years ago in a dispute over pricing.

BP's links to Russia go back two decades. It already operates a joint venture there ? TNK-BP ? although Dudley has a chequered personal history in the country: he left in 2008 after having his work permit revoked following a bitter dispute with local partners. Dudley played this down at Friday evening's signing ceremony: "I never regarded my experiences at TNK-BP as anything other than an extended business discussion."

Russia's prime minister has adopted a sympathetic view over the Deepwater spill. Sources say Putin was angry about BP's treatment by US politicians and was supportive of Dudley's predecessor, Tony Hayward, who lost his job over a string of ill-considered remarks, including a comment that he wanted to get his "life back" in the wake of the disaster, which killed 11 people.

Putin said this weekend that he did not consider BP solely to blame for the incident: "Our experts have scrutinised the tragedy: we know that BP was the organiser of the project, but there were also eight subcontractors, including major US companies."

Analysts say having the Kremlin on board would make it harder for another company to take over BP, which is selling off assets partly in response to the spill. It emerged this month that Shell discussed launching a takeover bid last summer should a US rival table an offer for BP.

Public vitriol could prompt Congress to call hearings over BP's tie-up with Rosneft. But some have expressed cynicism over the motivation for the outrage. "Sometimes politicians say things that make no sense," said Fadel Gheit, an oil analyst at Oppenheimer & Co in New York. "Has Russia declared war on us? Not to my knowledge."

The energy secretary, Chris Huhne, took part in handshakes to mark the agreement at BP's London head office. Huhne said that Russia accounts for nearly a fifth of the world's gas production and 13% of global oil output, which, he said, was vitally important in the medium term despite the government's aspiration to a low-carbon future.

"BP, as well all know, is coming out of a difficult period in its history," said Huhne. "This partnership shows BP is very much open for business."

Andrew Clark

Tim Webb

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