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BP, Rosneft Strike Natural Gas Alliance to Expand Europe Sales, Develop Projects

BP plc on Friday clinched an agreement with OAO Rosneft to expand natural gas sales to Europe and develop more gas projects in Russia.

Under terms of a memorandum of understanding (MOU) signed at the St. Petersburg International Economic Forum, the companies plan to jointly implement gas projects in Russia and abroad focused on gas exploration and production, liquefied natural gas production, as well as supply and marketing. No financial details were disclosed.

"Shifting to gas is one of the pillars of BP's strategy," said BP Russia President David Campbell. "It is important in order to meet the increasing demand for cleaner energy. Gas is a growing proportion of BP’s portfolio and by the middle of the next decade, we expect around 60% of our production to be gas, compared with around 50% today."

BP, theNo. 1 natural gas marketer in North America, expects gas demand to grow faster worldwide than oil or coal to 2035, according to the 2017 edition of the annual BP Energy Outlook issued in January.

Rosneft and BP also reconfirmed their mutual interest in cooperation in European gas marketing. According to the MOU, Rosneft and BP Gas Marketing Ltd. plan to implement a long-term sales and purchase agreement to supply gas produced by Rosneft for European markets starting in 2019.

"Rosneft already is the largest independent gas producer in Russia and intends to further increase production levels in the coming years," Rosneft CEO Igor Sechin said. “Cooperation with BP would provide Rosneft with both a new efficient gas monetization channel and the conditions required for the development of a new resource base, including hard to recover gas reserves."

State-owned Rosneft and BP have partnered in various ventures for years. In 2011 they allied in a strategic stock swap as part of a plan to jointly explore Russia's Arctic region. Last fall they created joint venture (JV) Yermak Neftegaz LLC to explore the West Siberian and Yenisey-Khatanga basins in the Russian Federation. The JV is focused on onshore exploration of two areas of mutual interest that cover a combined area of 260,000 square kilometers. Yermak Neftegaz is majority owned by Rosneft (51%).

Also last year Rosneft became an equal partner in groundbreaking research begun by BP and Schlumberger Ltd. to develop "cableless" onshore seismic acquisition technology.

U.S. companies may not work in Russian ventures under sanctions imposed by President Obama after Russia's incursion into Ukraine. However, many deals remain in place.

ExxonMobil Corp. struck a landmarkstrategic alliance with Rosneft in 2011 to explore and develop projects in the Gulf of Mexico (GOM) and the tight oil fields of Texas and Canada, as well as in Russia and other countries around the world. The companies laterforged agreements giving Rosneft access to U.S. and Canada onshore acreage, and the right to acquire an interest in 20 GOM blocks. In addition, they have a technology sharing agreement.

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