BP's planned $7.8-billion share swap and Arctic exploration deal with Rosneft was blocked by an arbitration tribunal Thursday.
The ruling represents a setback for BP's efforts to exploit one of the largest untapped oil troves left on Earth after the London-based producer's reputation was battered by the Gulf of Mexico oil spill last year.
BP said it was disappointed by the outcome of the tribunal and that it would look to find a way to "resolve its differences" with the Russian billionaire partners in its TNK-BP joint venture. It will also apply for a ruling as to whether the share swap can proceed by itself.
BP's partners had claimed exclusive rights to pursue new opportunities in Russia for BP. Last month they won a court injunction to delay the deal. AAR, the group that represents the billionaires, said in a statement that TNK-BP was interested in finding a way to work with Rosneft itself.
Tensions between BP and the billionaires have escalated after two years of peace following a battle over TNK-BP's strategy in 2008 that damaged output at Russia's third-largest oil producer.
The billionaires had initially blocked BP's Jan. 14 agreement to swap about $7.8 billion of shares for a 9.5% stake in Rosneft and form an Arctic offshore exploration venture, which Russian Prime Minister Vladimir Putin had lauded. It would have been the first deal of its kind between a state-owned company and an international oil producer.
As part of the accord, the two companies had agreed to explore a 48,000-square-mile area of the Kara Sea, north of Russia's largest developed fields in West Siberia. The first well was unlikely to have been drilled before 2015, and initial oil production was not due until 2025.