The 10 billion share swap, which was crucial to the deal, collapsed last night. The attempt by BP and Russian state-controlled Rosneft to buy out the billionaires who own half of TNK-BP, would have represented a major strategic shift for all the companies involved - but they are all back to the drawing board trying to decide what happens next.
BP chief executive Bob Dudley trumpeted the Rosneft deal, which was intended to give BP an interest in leases which may contain over 40 billion barrels of oil, as a sign that BP could offer growth after the Gulf of Mexico oil spill.
With fields representing 500,000 barrels per day of oil and gas production sold to pay for the spill clean-up, analysts termed Dudley's strategy of divesting mature assets and seeking out new projects as "shrink to grow".
While the shrinkage in BP's output and valuation is stark, its opportunities for expansion are fuzzy.
Dudley himself has said his focus is on increasing returns rather than output. However, his recent deals have involved adding low-margin reserves in places like China, India and Indonesia while the company's future in the US, which offers big reserves and fat profit margins, remains uncertain.
BP sources say the company still hopes to buy out its oligarch partners in TNK-BP, with whom it has long had a fractious relationship. This would remove a key risk that has weighed on BP's shares in recent months and at other times.
While sources close to Rosneft accused the Russian partners in TNK-BP of "sabotaging" the proposed buy-out deal by setting unacceptable demands, it's unlikely Rosneft will walk away entirely.
Russia's deputy prime minister Igor Sechin has a close personal relationship with Dudley and views the equity component of the BP deal as a particularly attractive route to taking Rosneft global, while eyeing TNK-BP as the way for Rosneft to become the world's largest listed oil firm by production and reserves.
Of the three parties in the discussion, Rosneft does, however, have the greatest number of options. Sources name Exxon, Chevron, Shell and Chinese firms as potential partners to explore the three Kara Sea blocks earmarked for the BP venture.
The four Soviet-born billionaires who own half of TNK-BP were willing to sell out their stake, in return for shares in BP and Rosneft, so that they could maintain exposure to the Russian oil industry, sources close to them said.
BP still hopes to secure a deal, according to a source close to the company. However, it cannot bid alone, as the Kremlin would not allow full foreign control of Russia's third-largest oil group and Rosneft is not so keen to issue shares to the oligarchs, bankers said. That means that, for now at least, BP and AAR - the billionaires' investment vehicle - will continue working in their uneasy but highly-profitable alliance that dates back to BP's purchase of half of TNK-BP in 2003.A source close to Rosneft named several possible candidates to step in to replace BP - US majors ExxonMobil and Chevron, Europe's Royal Dutch Shell and a Chinese player - but none is a clear win for Rosneft in the way BP was.
The foreign majors covet the Arctic Kara Sea projects, attracted by the size of the reserves and their relative accessibility. But the economics are daunting: the costs could run to $100bn (62bn) or more and Russia has yet to clarify the fiscal regime for these frontier projects, leaving a big question mark over an investor's ultimate returns.
None of the majors has Dudley's personal connection to Russia. For all the BP chief executive's trials, sources say, he has the respect of key players in the Russian industry, who also admire his commitment to the country.