The arbitral panel order also permits the proposed share swap between BP and Rosneft to proceed subject to Rosneft having consented to assign the Arctic opportunity to TNK-BP. For the share swap to proceed, both BP and Rosneft would also have to agree that any shares received as a result of the share swap would be held for investment purposes only and placed in trust, with voting rights exercised by independent trustees, together with certain other technical amendments. Neither company would have representatives on the others board in respect of these holdings.

Stan Polovets, CEO of AAR, said: "We welcome today's developments. Since BP announced the Rosneft deal in January, AAR has been consistently guided by two priorities. Firstly, we wanted to protect the integrity of our Shareholder Agreement and the value of TNK-BP, which has proved itself to be a fantastic business with a bright future. And secondly, we see the Arctic transaction with Rosneft as a great opportunity for TNK-BP and for Russia, which we would like to succeed.

"Today's agreement provides a good way forward for achieving these priorities and opens the way to bring BP's valuable expertise and technology to offshore exploration in Russia. We are now focused on working with BP and management of TNK-BP to continue the development of TNK-BP in Russia and internationally."

As a result of the consent order, BP can now seek agreement from Rosneft on the assignment of the Arctic opportunity to TNK-BP and modification of the terms of the share swap agreement. Rosneft's consent will be required for both of these matters to proceed.

The interim injunction on both the share swap and the Arctic opportunity remain in place, subject to obtaining Rosneft's consents as described above.

Chris Weafer, Chief Strategist of Uralsib, said in an investor note circulated on Sunday that the decision as to how the BP-AAR dispute ends has effectively now been passed to the Russian state.

"While the arbitration panel has cleared the way for TNK-BP to be brought into the Arctic deal in place of BP, state controlled Rosneft has previously said that it does not favour that. This week will likely see very intense negotiations between all parties with a view to concluding a deal ahead of the May 16th deadline. While the Prime Minister’s spokesman has previously said that the state is not involved, that will surely now change. It is inconceivable that the resolution of such an important deal in the country’s mote important strategic sector will not be overseen by the Prime Minister’s office.

"Rosneft must now decide. The next step is for BP and TNK-BP to open negotiations with Rosneft to get its approval for this revised partnership. Rosneft has previously said that it does not want TNK-BP as BP alone has the exploration/technical experience required. Prime Minister Putin has also said the same thing.

"After Friday’s ruling, there are three clear options:

"Rosneft allows the revised partnership and all sides find a way for BP to be the expert “sub-contractor” on the project as part of an internal TNK-BP deal

"Rosneft refuses to agree to the new terms and the original deal collapses

The AAR shareholders are either bought out of TNK-BP or a longer-term exit route is agreed that would allow TNK-BP to be taken over by a BP-Rosneft combination or other viable alternative

"State still wants the BP deal. It is clear that the state wants to avoid option 2, i.e. the deal fails. This is too important for Russia’s strategic energy development plan and for Rosneft’s ambitious future development as a global oil player. The fit with BP is opportunistically perfect for both sides and a similar structured deal, i.e. with an equity swap, is unlikely to be achieved with any other oil major that has the technical know-how.

"Important to conclude this positively. Before this latest dispute with AAR, concluding such a major deal between a state company and BP was also considered a strong positive to the perception of investment risk in Russia because of the latter’s often controversial history in Russia. Now it is almost essential to avoid a further deterioration of that perception.

"AAR wants a high exit price. The AAR shareholder’s position is that they do not wish to sell out of TNK-BP and want to best position the company for future growth. That said, it is reported that AAR did offer to sell its 50% stake for $40 bln while BP offered $27 bln (the current stock market value of a 50% stake is $25 bln). The principal AAR shareholders are all involved in other, non-energy related, industries. Last week it was reported that Len Blavatnik’s Access Industries is the front-runner to buy Warner Music Group.

"End game. From a strategic perspective, a revised deal, with TNK-BP replacing BP, is more likely to be agreed with Rosneft than the original deal to fail outright. The only question is whether the AAR shareholders will be part of that revised deal; for how long; and, if not, who takes them out and for how much?"

Russia's first deputy prime minister in charge of the energy sector stepped down last month as CXhairman of Rosneft on the orders of Russian President Dmitry Medvedev, so the onus will be on Eduard Khudainatov, the company president since last September to decide whether to accept the new terms of the strategically important deal.

Eduard Khudainatov - man in the hot seat