BILLED as the deal that would put BP's troubles behind it after the Gulf of Mexico oil spill, a share swap and Arctic Sea exploration agreement with Rosneft, Russia's state-owned oil and gas giant, has so far looked like another calamity in the making. After the deal was announced in January, AAR, BP's Russian partner in TNK-BP, a money-spinning joint venture, objected to the tie-up, which appeared to break the agreement between AAR and BP that the British oil firm would pursue all its Russian projects through the joint venture. BP had not even told AAR that it had been negotiating the deal with Rosneft. Lengthy negotiations ensued. The latest deadline passed on May 16th without resolving the impasse between BP, Rosneft and AAR. BP admitted that the deal had lapsed.

Yet this time almost all the big issues had been resolved. BP had agreed on a price to buy out AAR, and the make-up of cash and shares involved. And the terms of a deal that would eventually see Rosneft acquire the AAR stake in TNK-BP had been largely hammered out. The sticking-point was finding a mechanism that would lead to the immediate lifting of a tribunal's injunction that had prevented BP and Rosneft swapping shares. Rosneft wanted this so that the share swap could go ahead without delay, allowing the Russian firm to claim its prized stake in BP and denying AAR the opportunity to haggle further. AAR did not want the injunction lifted immediately, since its part of the deal would take 3-4 months to go through and could potentially fall apart, leaving it back where it started.

"There is still room" for talks to resume, a source close to the negotiations told The Economist. Noises coming out of Moscow suggest the deal is dead and that Rosneft is seeking a replacement for BP. But some reckon that this is a ploy to put pressure on all parties to conclude a deal speedily. And for Rosneft, finding another suitable oil company to exploit oil reserves beneath Russia's Arctic seas may not be so simple. Rosneft would still want a share swap, which other oil companies, lacking BP's Russian experience, may not find palatable. And despite protestations that they are now getting along well, BP and TNK-BP may find that their relations have become strained over the episode. If AAR and Rosneft can find a solution that keeps both parties happy a new similar deal is not out of the question and BP will have drilled its way out of a deep hole of its own construction.

Read on: BP's boss gets the company into a mess over its Russian dealings