BP May Get Chance to Explore the Russian Arctic After All

March 20th, 2012 by Trefis Team
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British energy major BP (NYSE:BP) may get a chance to explore the Russian Arctic region for oil and gas reserves after all. Last year the company failed to reach a deal with Russian state owned producer Rosneft to jointly explore the country’s northern territories for oil. Rosneft later partnered with rival Exxon Mobil (NYSE:XOM) in what was seen as a major embarrassment for BP.

However, according to Lukoil Chief Executive Vagit Alekperov, Russia may loosen regulations over exploration in the Arctic region in the near future, [1] which could result in BP and other foreign players also being allowed access to the reserves in the region. We have a $59.51 price estimate for BP, which is at 30% premium to its current market price.

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Russian reserves

Present Russian regulations only allow state owned Gazprom and Rosneft to operate in the Arctic region within the country. [1] With some of the country’s present fields in Siberia expected to go into decline after a few years, Russian authorities are looking to ease some of the restrictions to encourage investments in the development of new fields.

Geologists predict that the country’s Arctic region may hold massive reserves of oil and gas, however its state companies lack technical expertise needed to explore these challenging territories. Last year Rosneft announced a tie up with Exxon Mobil to explore some of the remote blocks in the Arctic. The government is expected to allow private players like Lukoil to begin exploration in the region as well.

BP already has a significant portion of its oil output coming from its Russian subsidiary TNK-BP. More relaxed regulation could help the company expand into Arctic regions well in the future. Helping it boost its oil production volumes, which have seen a decline in the past couple of years.

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Notes:
  1. Russian Arctic eyes Big Oil, MarketWatch [↩] [↩]