With a tough 2010 behind it, BP (NYSE: BP ) has agreed to team up with Russia's state-controlled oil company Rosnet -- which is in need of modern energy expertise -- to search for oil and gas in the Russian Arctic.
The unusual deal would give BP a 9.5% stake in the Russian company, with 5% of BP going to Rosneft. However, there's now a cacophony from the West about Vladimir Putin and his pals' inability to play nicely. The primary impetus for this claim is Rosneft itself, which was largely built on assets taken by the Kremlin in 2004 from Yukos, a private oil company run by the now-imprisoned Mikhail Khodorkovsky, who is hardly a Putin ally.
Last week, Britain's The Economist magazine said, "This newspaper is no fan of Mr. Putin, and has warned Western companies of the perils of dealing with him." But BP may not need that lesson: It picked up $1 billion of Rosneft shares at the latter's 2006 initial public offering. And it's also a 50-50 partner with a handful of Russian billionaires in TNK-BP, a sizable Russian energy company.
The relationship between BP and its Russian partners hasn't always been amicable. In 2008, current BP CEO Bob Dudley, who then ran the partnership, was forced by heavy-handedness from his partners and Russian authorities to leave the country when his visa was not renewed. He then ran TNK-BP from an undisclosed location until the CEO post went to a Russian.
Since then, TNK-BP has run calmly -- almost. But lest you conclude that it'll stay this tranquil, the Russian partners are in a lather about BP's proposed tie-up with their rival, Rosneft. They reportedly are headed toward filing an injunction in London, with an eye toward delaying -- or even preventing -- the deal.
BP hasn't been the only Western oil company to get hammered in Russia. In 2006, Royal Dutch Shell (NYSE: RDS-A ) was forced to sell its operating position in Sakhalin-2, off Russia's east coast, for less than market value to Gazprom, Russia's huge state gas company. Furthermore, France's Total (NYSE: TOT ) and Norway's Statoil (NYSE: STO ) have together had their ups and down with Gazprom on the big Shtokman gas project.
Even ExxonMobil (NYSE: XOM ) has jousted with authorities during its development of the Sakhalin-1 project. Indeed, in 2007 the company vowed not to enter into any new projects in Russia, given the country's rough tactics. As recently as last July, Exxon and the Russian government were again at odds over differences in the project's costs and its production-sharing agreement.
Now, BP may about to be hit again by Russian shenanigans. But with its shares far cheaper than they were in April when its Gulf of Mexico tragedy began, I wouldn't be deterred from taking a position in the company.