1. Speculate as to the purpose of the share swap between BP and Rosneft.
2. What is the purpose of the two-year lockup period during which neither partner can sell its stock? How might the lockup period impact the value of each firm’s holdings?
3. Would you expect the share exchange to be dilutive to BP shareholders in the short run? In the long run? Explain your answer.
4. Why would you expect the publicly traded Rosneft shares not to reflect the true value of the firm?
5. How would you estimate the market capitalization for Rosneft based on the terms of the share exchange? Show your work.
6. How can BP best protect its interests in the JV with Rosneft in the highly uncertain political and economic environment of Russia?

Extending its already close ties with Russia, British Petroleum PLC announced an agreement to exchange shares with Russia’s largest oil company, OAO Rosneft, on January 14, 2011. Rosneft is 75% owned by the Russian government. BP and Rosneft also announced the formation of a JV to develop three massive offshore exploration blocks that Rosneft owns in northern Russia. The two firms said they will jointly explore three areas in the South Kara Sea in the Russian Arctic, spending between $1.4 and $2 billion on seismic tests and drilling wells in the initial exploration phase. The JV will be two-thirds owned by Rosneft, with the remainder owned by BP.