BP's troubles forceit to turn to Russia

Oil companies, like the media, always need a good "story" to engage investors and lead them to believe the future is bright. The deal that BP signed with Rosneft on Friday was the British oil major's way of trying to move on from the horror story of the US Gulf.

The new narrative was wrapped round the idea that the Russian Arctic is an offshore gold mine waiting to be exploited by BP. It has massive reserves but is also a hazardous place to drill with huge financial and environmental costs. That is why the Russians have talked endlessly about its potential but done so little to exploit it.

The share swap between BP and Rosneft with the Arctic assets deal is no doubt done to please the Russians. Having a 9 per cent stake in a company 75 per cent-owned by the Kremlin gives BP no control as it knows from its travails with its other big Russian venture, TNK-BP.

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BP was generally believed to be fed up with Russia. The quick bucks had been made out of TNK-BP with old inefficient oilfields upgraded by the British oil firm's technical expertise.

Equally, the climate for foreign investment in Russia was universally believed to have turned for the worst. No surprise then that the US group ConocoPhillips is selling out of its joint venture with Lukoil of Russia.

But needs must. BP's reputation has been torched in the US, where it earned 40 per cent of its profits. It fears deals in the Gulf, where it is the biggest operator, will be hard to come by in future.

So it must look east and has chosen Russia, from where its new chief executive, Bob Dudley, was forced to flee when he was boss of TNK-BP.

The Russians are undoubtedly the main winner in the Rosneft tie-up with BP. The Kremlin does not care too much about BP's rock-bottom reputation with environmentalists. It wants BP's technological prowess and access to the international financial markets to try to make its dream of mastering the Arctic come true. Although questions remain over the economics of the Arctic fields, Moscow will be delighted with its "strategic alliance" with BP which shows, it says, how foreign investors are clamouring to do business there.

Chris Huhne, UK energy and climate change secretary, has given his blessing to the corporate tie-up, talking cheerfully about the good relations between the two countries.

Few others realised that things were so cordial, especially in the wake of former Yukos boss Mikhail Khodorkovsky being imprisoned for another six years in Siberia. Khodorkovsky had his Yukos assets taken back by the Kremlin and transferred to Rosneft.

In the past British governments shuddered at the idea that Gazprom might buy British Gas's parent company, Centrica. Perhaps Huhne is ready to wave through that kind of merger in future, too.