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Shares in BP (NYSE: BP) took a minor tumble early on Friday on the news that the company's plans for a joint Arctic exploration operation with Russia's state-owned Rosneft, which apparently had the backing of Russian Premier Vladimir Putin, has been blocked -- though they did quickly recover.

The plan was for the two companies to jointly explore large oil and gas reserves under Russia's Arctic shelf -- reserves that could turn out to be very large indeed should Russia's claims to large areas of the Arctic sea bed prove fruitful.

The deal was successfully challenged by the Alfa-Access-Renova consortium, which represents the group of very wealthy oligarchs in control of the Russian part of BP's Russian partnership, TNK-BP. They argued that the TNK-BP collaboration gives them first refusal on any BP operations in Russia. And on Friday the Swedish arbitration panel judging the issue agreed.

In addition, there was to be a share swap between BP and Rosneft to the value of 10 billion pounds. BP hopes this can still go ahead independently of the planned joint exploration, although the share deal is thought to have added to TNK-BP's ire.

BP now has a tricky task on its hands if it wants to negotiate some sort of agreement to get the Rosneft partnership back on track, and the main fear is that an alternative partner will step into the breach and sideline BP in the search for the oily Arctic riches.

What now?
BP's chief executive, Bob Dudley, has come under fire for failing to appreciate the complexities of doing business in Russia and making a bad mistake in leaving TNK-BP out of the deal.

If BP wants to reverse this setback, it's going to have to toss some sweeteners in the direction of TNK-BP. And after BP's statement that "it looks forward to finding a way to resolve its differences with its Russian partners to allow these important Russian Arctic developments to proceed in the future," the most likely option seems to be to give TNK-BP a stake in the intended joint venture.

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