Strategic alliance or just duff deal?

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Some deals with Gazprom seem to hang by a thread. (PATRIK STOLLARZ/AFP/Getty Images)

BP and Gazprom may enter into a strategic alliance aimed at international energy investment, if the companies follow up on the memorandum of understanding signed recently.

The potential agreement, which BP is sharing with its Russian subsidiary TNK-BP, is designed to make Gazprom more outward looking, while deepening BP and TNK-BP involvement in Russian oil and gas.

"We will initially be looking for projects of at least US $3 billion, but the potential for further growth could be very significant," said BP chief executive Tony Hayward. "This historic agreement lays the ground for powerful co-operation between BP, TNK-BP and Gazprom."

Of interest is the price BP is willing to pay. The agreement will see TNK-BP sell Gazprom its 62% stake in Rusia Petroleum, the company that holds the licence for the Kovykta gas field, and its 50% interest in East Siberian Gas Company (ESGCo). BP's says Gazprom will pay between US $700-$900 million for the two stakes, a price regarded by many as too cheap.

Speaking at an investment conference in Moscow a few days before the announcement, Hayward had made reference to ‘bumps in the road' when referring to BP's activity in Russia.

"The speculation over Kovykta is certainly not ideal, but we understand the importance of strategic assets and I consider this issue to be no more than one of those bumps in the road, which, as I said a moment ago, we all have to navigate occasionally," said Hayward.

The deal with Gazprom may well have been the company's best option for ending speculation, but most commentators have seen it as a face-saving move.

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