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UPDATE 2-Arbitration panel thwarts BP-Rosneft deal

Published 03/24/2011, 03:57 PM

* Stops BP and Rosneft from share swap and Arctic deal

* Temporary injunction to continue

* BP seeks to execute share swap separately

* Rosneft declines immediate comment (Adds more BP comment, AAR statement, analyst)

By Vladimir Soldatkin

MOSCOW, March 24 (Reuters) - An arbitration panel on Thursday blocked BP and Rosneft from forming a strategic alliance, BP and the local shareholders in its Russian venture, TNK-BP , said.

The ruling is a major blow to both BP, still reeling from the Gulf of Mexico oil spill, and the Russian government, which has struck a series of deals this year with international energy majors to develop its oil and gas industry.

The panel ruled on the case after AAR won a temporary injunction against the deal, under which BP and Rosneft would explore for oil in the Arctic offshore and execute a $16 billion share swap.

"The tribunal's decision means that BP is prohibited from entering into any future share arrangement with Rosneft that has any kind of strategic component," Alfa-Access-Renova (AAR), which represents a group of tycoons who own half of TNK-BP, said in a statement.

BP said that the tribunal had found that the injunction should continue.

It added it would seek a ruling on whether the share swap -- under which it would swap a 5 percent stake for a 10 percent holding in Rosneft -- may proceed on its own.

It would also seek to resolve differences with AAR to allow the Arctic exploration pact with Rosneft to go ahead.

Analysts said that the court ruling would not necessarily derail the BP-Rosneft pact, but the cost of any settlement to enable it to go ahead would perobably rise.

"The price of the case settlement is likely to rise ... and of course, AAR understands it's a blow for BP's prestige," said Valery Nesterov, energy analyst at Troika Dialog in Moscow.

"Everyone understands that the outcome is an out-of-court settlement that will allow BP to continue cooperating with Rosneft and for TNK-BP to develop and count on support from the British shareholders."

"DISAPPOINTED"

"BP (is) disappointed that these agreements, which are important for Russia, for Rosneft and for BP, cannot for now go ahead in the form intended, due to legal challenge by AAR," the British oil major said.

"BP intends to continue to honour the TNK-BP shareholders' agreement to which it is a party with AAR, and will respect the decision of the arbitrators."

It added that BP "has always been, and remains, fully committed to investing in Russia."

TNK-BP, which pumps around 1.3 million barrels per day of crude, accounts for around 10 percent of BP's earnings.

AAR had argued that the deal between BP and state-controlled Rosneft, Russia's top oil producer, violated the right of refusal on deals in Russia enshrined in TNK-BP's shareholder agreement.

"AAR welcomes the decision of the Arbitration Tribunal, which we expect BP to honour fully and absolutely," said Stan Polovets, chief executive of AAR, in a statement.

BP and Rosneft struck the agreement in January, but quickly met resistance from AAR, which represents billionaires Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik.

The dispute threatens to escalate tensions between the group of oligarchs and Russian Prime Minister Vladimir Putin's powerful energy tsar, Igor Sechin, who is deputy prime minister and chairman of Rosneft.

Sechin said in a newspaper interview last month that should the agreement unravel, Rosneft would "require compensation from those who would have inflicted ... losses."

Rosneft had no immediate comment on the arbitration ruling. (Additional reporting by London bureau; Editing by Douglas Busvine and Steve Orlofsky)

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