Rosneft deal marks new dawn for BP Last Friday, a black Mercedes with tinted windows slipped into BP's underground car park, avoiding the TV crews and paparazzi camped out by the oil group's front entrance in St James" Square. In the back sat Igor Sechin, chief executive of Rosneft - and BP's newly-minted strategic partner. After hours of painstaking negotiations stretching into Friday night, Mr Sechin and BP's chief executive Bob Dudley shook hands, ushering in what promises to be one of the oil industry's most unique partnerships. BP's board had just approved an offer from Rosneft to buy the UK oil group out of its Russian joint venture, TNK-BP, in a cash-and-shares deal worth up to $27bn. The transaction, which must still be approved by the Russian government, will leave BP with a stake of at least 19 per cent in Rosneft, making it the second largest shareholder in the company after the Russian state. The deal marks a new dawn for BP in Russia, the world's largest producer of oil and gas and home to some of its largest untapped hydrocarbon riches. It also brings an end to BP's long, lucrative but strife-ridden association with TNK-BP, a venture whose commercial success was overshadowed by the fractious relationship between BP and its partners, AAR. "There's recognition that both sides can bring a lot to this," says one person familiar with the BP-Rosneft negotiations. This can be a win/win ... The other relationship always seemed to be win/lose. The deal makes strategic sense for BP. Its current partners, led by the head of Alfa, Mikhail Fridman, typify the generation of Russian entrepreneurs who rose to prominence in the chaotic Yeltsin years on the back of the break-up and privatisation of the Soviet Union's oil industry. Since Vladimir Putin's ascent to the presidency nearly 13 years ago, that has gone into reverse, with Rosneft emerging as the state's chosen vehicle for consolidating state control over the sector and Mr Sechin himself in the driving seat. Rosneft was the main beneficiary of the carve-up of Yukos, once Russia's biggest private oil company, whose chief executive Mikhail Khodorkovsky was jailed for fraud after a trial seen as highly politicised. Yet there is concern among some investors that BP might be jumping out of the frying pan and into the fire. Some fear BP will have little say in how Rosneft is run, even with a 20 per cent stake and a seat on the board. Others see potential corporate governance risks in partnering with a company widely seen as a proxy for the Russian state. "They will have a seat at the table in Rosneft, but they will be very much the junior partner, without control," says Stephen Thornber, global equity fund manager at Threadneedle Investments. It's a national oil company, and will be run for the benefit of the Russian government and the Russian people. BP, he says, will have "little weight in decision-making." Some have cited the case of ConocoPhillips, the US oil company. In 2004, it built up the strongest position of any US oil company in Russia with an 8 per cent shareholding in oil producer Lukoil that it later increased to 20 per cent. However, the investment did not win Conoco either access to Russia's vast oil and gas reserves, or influence in Lukoil's boardroom. It ended up selling the stake. BP executives reject the comparison. Conoco's main problem was that it backed the wrong horse: Lukoil had been one of Russia's fastest-growing oil companies, but its influence waned with the rise of state-owned groups such as Rosneft and Gazprom under Mr Putin. They also note that Conoco decided to sell the Lukoil stake as part of a broader asset disposal plan aimed at reducing debt. Company executives are playing down the prospect that this weekend's deal will automatically open new prospects for BP in the Russian Arctic. There has been speculation the company could soon forge a new exploration alliance with Rosneft similar to the one that was blocked in the courts by AAR last year. But the licence areas that were awarded to BP under last year's abortive deal have been reallocated to ExxonMobil, and two other companies - ENI and Statoil - have also clinched agreements with Rosneft on Arctic acreage, leaving little over for the UK oil group. That, says one person close to the company, is not necessarily as disappointing as it sounds. Exxon and the others, they note, will have to shoulder all the exploration costs of their joint ventures with Rosneft - costs that could run into the billions of dollars. Meanwhile BP, as a significant Rosneft shareholder, will be able to share in the upside of higher production and bigger profits. No one at BP thinks it is plain-sailing for the company from now on. "It's not risk-free," says a person close to the company. This is Russia.