Where BP failed, Exxon succeeds

FOR BP it could hardly have been worse. On August 30th Exxon Mobil struck a deal with Rosneft to explore the same icy blocks of the Arctic Kara Sea that slipped from BP's grasp when its vaunted tie-up with the Russian state-controlled oil firm collapsed in the spring. Then things did get worse: the next day, one of BP's Moscow offices was raided by bailiffs.

The deal is a triumph for Exxon, giving it access to one of oil's richest frontiers, with none of the nasty add-ons that tripped up BP. The British firm's proposed link with Rosneft would have meant giving the Russian firm 5% of its shares, an arrangement that BP's existing Russian partner, AAR, objected to. AAR took legal action and successfully blocked the deal.

Exxon, in contrast, is neither swapping shares nor violating any previous agreement. It has pledged to spend $2.2 billion exploring the potentially oil-rich Kara and $1 billion prospecting in the Black Sea. In return, it will allow Rosneft to take minority stakes in its deep-water projects in the Gulf of Mexico and onshore in Texas.

If all goes well, Exxon's total investment in Russian Arctic oil could run into hundreds of billions of dollars over a decade—a figure Russia's prime minister, Vladimir Putin, at a ceremony to launch the deal, described as "scary to utter". Whether such terrifying sums materialise will depend partly on the financial terms of Arctic exploration and the Kremlin's flexibility over the tax status of the project. These are yet to be decided.

Yet Exxon's plans already look more promising than BP's did. When announcing that proposal, Bob Dudley, BP's boss, trumpeted his knowledge of Russian politics. In fact it was BP's misjudgment of Russian politics and corporate culture that did for the deal. Mr Dudley wrongly believed that getting into bed with a powerful Kremlin firm would cow his existing oligarch partners. Having now alienated both, BP appears to have little protection against being pushed around in Russia—as the raid on its offices may suggest.

To Exxon's great advantage, its deal is more important to Russia, which desperately needs foreign investment and expertise in its oil industry, than it is for Exxon, the world's biggest private oil firm. Rosneft's share price jumped 8% after the announcement. (It also jumped 8% the previous day in the local market, suggesting insider dealing.) Exxon's shareholders were less giddy, perhaps reflecting on the pitfalls of doing business in Russia.

They have experienced them. In 2003 Exxon considered buying a large stake in Yukos, then Russia's largest oil firm. Yet shortly after Lee Raymond, Exxon's chief executive, flew to Moscow to negotiate the deal with Mr Putin, Yukos's main shareholder, Mikhail Khodorkovsky, was arrested, Yukos was dismantled and its assets were swallowed by Rosneft.

That outrage could yet cast a shadow over the Exxon deal in America, where politicians continue to condemn the Kremlin over it. Indeed, this may be one reason why Igor Sechin, Mr Putin's right-hand man, who oversaw the destruction of Yukos and the Exxon deal, has kept away from America. But American oil firms are a different matter: as Exxon has shown, so long as you sit on colossal oil reserves, they will always be happy to do business.