BP does deal with Russia's Rosneft

BP's chief executive, Bob Dudley, will lead an investor roadshow to calm fears over the £10 billion ($20.7 billion) share swap with Russian state-owned energy giant Rosneft.

Some investors have reacted angrily to the deal, announced on Saturday, which will see Rosneft take a 5 per cent stake in BP.

Additional stock will be issued, diluting the stakes of existing shareholders.

Dudley is expected to repeat his message that "both companies are undervalued today and the swap deal will create an alignment of interests" to improve both share prices.

A senior oil-and-gas banker said: "I've spoken to a lot of investors and there's a real mixture of people who like the deal and those who think it is the wrong thing to do.

"A lot of the key shareholders think 'BP should be issuing shares to us for standing by them' [during last year's Gulf of Mexico disaster] and argue that a lot of companies have got their fingers burned dealing with Russia. There's a lot of risk here."

BP has arranged a series of investor meetings early next month after its full-year results. Dudley will explain the rationale of the deal, which sees BP take a 9.5 per cent stake in Rosneft.

Infamously, Dudley was forced to flee Russia when a huge argument over the leadership of BP's joint venture with TNK broke out in 2008.

Since becoming chief executive after the Deepwater Horizon disaster last year, he has rebuilt relations with Russian leaders.

On Saturday he said: "I have never regarded my experience at TNK-BP as anything other than an extended business discussion."

Despite disquiet over some Russian business practices - Rosneft itself was formed in strange circumstances related to the bankruptcy in 2003 of Mikhail Khodorkovsky - many investors are excited by the tie-up.

BP and Rosneft will set up an operating company in the unexplored region of the Arctic's Kara Sea, an area the size of the North Sea with oil prospects to match. Drilling could start within four years.

Dudley, who discussed the deal with Vladimir Putin, said the Russian Prime Minister had told him that "this was an alliance based on mutual advantage".

The British Government also approved the deal, showing that it is looking east for energy security.

United States politicians, still infuriated by the Deepwater Horizon disaster, are angry, with Democrat Ed Markey immediately calling for a review of the deal.

- INDEPENDENT