BP's plan to gain a foothold in Russia's offshore Arctic oilfields through a deal with state-controlled Rosneft has collapsed, opening the way for other oil groups to try to fill its place.

The tie-up unravelled because BP failed to mollify partners in its existing Russian venture TNK-BP. They argue the British company had no right to strike a new deal in the country without them.

BP chief executive Bob Dudley had trumpeted the Arctic exploration pact and share swap with Rosneft, signed in January, as a signal BP could still offer growth after its disastrous Gulf of Mexico oil spill last year.

While some said BP was better off not pursuing the deal, failure to see it through has been seen as an embarrassment for Dudley, who said on Tuesday talks aimed at resolving the problem with TNK-BP partners had not reached agreement.

This is putting a brave face on a disappointing episode. While the market may see this as disappointing we believe it is better to walk away than have a bad deal, Evolution Securities analyst Richard Griffith said in a research note.

The collapse also marks a personal setback for Russia's Deputy Prime Minister Igor Sechin. He has masterminded Rosneft's growth and development since it acquired the assets of bankrupt oil firm Yukos and went on to open an eastern pipeline export route for Russian crude to the Asia-Pacific.

Sechin and his boss, Prime Minister Vladimir Putin, have become accustomed to being able to dictate terms in strategic oil deals. Sources say Sechin has a good personal relationship with Dudley and views the share swap component of the BP deal as particularly attractive.

But Rosneft does have other options in the Arctic and is talking to Exxon, Shell, Chevron and Chinese companies to explore the offshore territory, a source close to the company told Reuters. Rosneft had no comment.


BP's partners in TNK-BP -- four Russian billionaires represented by the Alfa-Access-Renova (AAR) took court action to block the Rosneft deal, leading directly to its collapse on Monday.

BP and Rosneft made a last-ditch $32 billion offer including $9 billion in BP stock to buy out AAR, the source close to Rosneft said. But there was no agreement and, after months of wrangling, Rosneft has decided to pull out and search instead for new partners to explore the three Arctic Kara Sea blocks earmarked for the offshore venture with BP.

A source close to BP said it still hoped to buy out its TNK-BP partners, although there was no timeline for this. The company said talks with Rosneft and AAR would also continue.

That raised hopes among shareholders and analysts that a deal could yet be struck with Rosneft.

BP continues to have the expertise that would enable Russian Arctic oil assets to be successfully exploited and a future deal shouldn't be ruled out at this stage, Martin Cholwill, manager of the Royal London UK Equity Income Fund, told Reuters, adding that investors would focus on whether the structure of any future deal created significant value for BP shareholders given the risks of doing business in Russia.

Mikhail Fridman, Chairman of Alfa Group and one of the four tycoons who control AAR, said there would be more talks between the three parties.

The TNK-BP partners are keen to get the Arctic exposure since the joint venture with BP has limited growth prospects due to a mainly mature onshore portfolio.

We look forward to working with BP on delivering the next phase of TNK-BP's growth, both in Russia and internationally. AAR also sees significant benefit to developing cooperation with Rosneft within the framework of the TNK-BP Shareholder Agreement, and we plan to continue discussions about potential collaboration among BP, Rosneft and AAR, Fridman said.

BP shares were up 1.1 percent at 443 pence at 1136 GMT, while Rosneft was down 0.8 percent at 228 roubles.

(Additional reporting by Douglas Busvine in Moscow and Sinead Cruise in London; Writing by Alexander Smith; Editing by Dan Lalor and Andrew Callus)