BP Ties Up with Rosneft on Domanik Formations

British oil giant, BP plc (BP) has inked a Heads of Agreement with Russian state oil company OAO Rosneft related to the joint development of the Domanik shale formations in Central Russia’s Volga-Urals region.

The joint venture to be formed by the two companies will be incorporated in Russia. Rosneft will own 51% stake in the venture, while the remaining 49% will be held by BP. BP has a stake of about 20% in Rosneft. The deal comes amid sanctions by the U.S. government against Russia in March over the Ukraine crisis.

The deal between Rosneft and BP was inked within the framework of the St. Petersburg International Economic Forum. It was signed by Rosneft President and Chairman of the Management Board, Igor Sechin and BP Russia President, David Campbell.

The Heads of Agreement requires for execution of a joint pilot project by Rosneft and BP with respect to the Domanik formations. If the above-mentioned project is a success, it will lead to development of unconventional Domanik resources.

BP will reimburse part of the historical costs associated with exploration of the Domanik formations to Rosneft. The British company will also provide carry financing of about $300 million for the pilot program, which will be executed in two phases at license blocks in the Orenburg Region.

BP has a leading position among global offshore drillers. The company’s strategy of offloading non-core upstream properties will prove beneficial over time, while creating a portfolio with potentially stronger growth from a smaller base. Additionally, BP’s position in the Woodford, Haynesville, Fayetteville, Eagle Ford and Utica shale plays, along with its vast resource base and in-depth knowledge in unconventional gas, will aid its natural gas operations going forward.

At present, BP carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include Encana Corporation (ECA), Matrix Services Company (MTRX) and CVR Refining LP (CVRR). All these stocks sport a Zacks Rank #1 (Strong Buy).