BP plc and Russia’s state-controlled oil company OAO Rosneft late Friday announced a “groundbreaking strategic alliance” involving a stock swap and a deal to jointly explore Russia’s Arctic region.

The aggregate value of the BP shares to be issued to Rosneft was about $7.8 billion at close of trading in London on Friday. The transaction still requires some approvals.

The transaction gives Rosneft 5% of BP’s ordinary voting shares and BP gains about 9.5% of Rosneft’s shares. BP already owned about 1% of Rosneft’s shares. The value of Rosneft’s shares and the full value of the transaction were not disclosed. The companies held a joint press conference at BP’s London headquarters about 9 p.m. local time.

“This unique agreement underlines our long-term, strategic and deepening links with the world’s largest hydrocarbon-producing nation,” said BP CEO Bob Dudley. “We are very pleased to be joining Russia’s leading oil company to jointly explore some of the most promising parts of the Russian Arctic, one of the world’s last remaining unexplored basins.

“Underpinning this alliance is a new type of relationship based on a significant cross-shareholding, and bringing together technology, exploration and safe and responsible field development skills. We are very pleased to welcome Rosneft as a strategic partner and major shareholder in the BP Group.”

The agreement “creates the first major equity-linked partnership between a national and international oil company,” according to BP. “The share swap component of the alliance creates strategic alignment to pursue joint projects and demonstrates mutual confidence in the growth potential of both companies.”

The producers agreed to explore and develop three license blocks on the Russian Arctic continental shelf that were awarded to Rosneft last year. The blocks cover about 125,000 square kilometers in the South Kara Sea. The region is “roughly equivalent in size and prospectivity to the UK North Sea,” BP stated.

BP and Rosneft also agreed to establish an Arctic technology center in Russia to develop technologies and engineering practices “for the safe extraction of hydrocarbon resources from the Arctic shelf.” The technology center would “build on BP’s deep offshore experience and learnings with full emphasis on safety, environmental integrity and emergency spill response capability.”

The duo also agreed to continue joint technical studies in the Russian Arctic to assess hydrocarbon prospectivity in areas beyond the Kara Sea. In addition, they plan to look for more opportunities to collaborate beyond a 50/50 joint venture (JV) partnership in Ruhr Oel GmbH in Germany.

“The world’s need for energy continues to increase,” said BP Chairman Carl-Henric Svanberg. “BP is working with national oil companies using its leading exploration skills and expertise to meet this demand. This is a trend which will increase as access to resource becomes scarcer. This landmark deal creates a deep partnership which represents a new stage in these relationships.

“The exchange of shares demonstrates our mutual commitment,” he said. “The BP board believes that the combination of assets and skills will unlock significant value and thus the issue of shares to Rosneft is in the interests of all shareholders.”

Rosneft is Russia’s leading oil company, producing close to 2.4 million boe/d, with reserves of 15,146 billion boe. Rosneft reported pre tax profits in 2009 of $8.52 billion. Gross assets at the end of September were estimated at close to $88 billion.

Once news of the agreement was known, U.S. Rep. Ed Markey (D-MA) called for a U.S. government review to ensure it would not impact national security. Markey referred to BP as “Bolshoi Petroleum” in his announcement.

“If this agreement affects the national and economic security of the United States then it should be immediately reviewed by the Committee on Foreign Investment in the United States,” said Markey. The committee is part of the Treasury Department. “Additionally, the U.S. State Department should closely monitor this transaction.”

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