BP, Russia and Rosneft

Focus: GLOBAL

Vivian Lewis Image Vivian Lewis Editor and Publisher, Global Investing

Vivian Lewis is a top expert on international investing; here, the editor of Global Investing reviews a leading U.K.-based -- and U.S.-listed -- energy player with a large stake in the speculative Russian oil sector.

BP plc (BP) – my oil patch favorite -- just lost the bidding against other major oil companies for Mexican deepwater concessions. It may have been hindered by memories of the 2010 Deepwater Horizon disaster in US Gulf waters.

But in other parts of the globe, notably Russia, BP is sitting pretty. It offered a 4% royalty plus $606 million and won the Trion field.

Making a big bet on both oil and Vladimir Putin’s Russia, Glencore (London: GLEN) and its shareholder, the Qatari sovereign wealth fund (QSWF), will jointly pay $11.3 billion for a 19.5% stake in Rosneft, the Russian state-controlled oil company run by a Putin pal, Igor Sechin.

BP is in the catbird seat. Glencore got a cheap price for buying into the world's largest oil company by production. BP, however, paid considerably less net for a marginally larger stake.

BP has a 19.75% stake in Rosneft for which it paid net $1.5 billion. It also has a direct 20% stake in the Taal-Yuryach Neftegaz field in eastern Siberia which it nabbed in mid-2015.

Rosneft couldn't fund exploration in this promising area for further oil and gas without a foreign partner and Sechin – a former spy -- was subject to sanctions over the Russian invasion of Ukraine and seizure of Yalta, so BP was the only partner available.

BP also last summer picked up similar sized stakes in two other Siberian areas, Yermak and Yenisey-Khatanga where exploration permits have now been received, and where work will begin next year.