BP’s Russian oil venture frozen by doubt after resignation of TNK-BP chief Mikhail Fridman
When BP’s chief executive, Bob Dudley, unveiled its Arctic exploration deal with Russia’s Rosneft in January last year, he heralded it as “a new template for how business can be done in our industry”.
Mikhail Fridman, who resigned as TNK-BP chief executive.
By Emily Gosden
8:49PM BST 29 May 2012
“It is difficult to convey just how promising I find this historic agreement,” he told the world’s media.
But, within days, the tie-up was threatened by the oligarch partners in BP’s existing Russian joint venture, TNK-BP, slighted at being left out. By the summer, their litigation and manoeuvring left the deal dead in the water, an embarrassing failure for BP.
As BP learnt to its cost, the oligarchs – the Alfa-Access-Renova (AAR) group – have their own set of rules for how business can be done.
That fact makes the outcome of the latest stand-off, sparked by Mikhail Fridman’s resignation as TNK-BP chief executive on Monday, all the more difficult to predict.
Mr Fridman is one of AAR’s oligarchs and some say his move spells the end for the nine-year power struggle, with either BP or the oligarchs heading for an exit.
Yet TNK-BP has recovered from such crises before.
In 2008, Mr Dudley, then TNK-BP chief, was hounded out of Russia in a dispute over AAR’s ambitions for international expansion. BP has become more accustomed to the AAR view that litigation and aggression are just parts of doing business in Russia.
German Khan – another oligarch in the Alfa group, and a man who says he finds The Godfather films “instructive” – insisted last year that “shareholder conflicts are good for companies”.
But for the latest dispute to be overcome, the partners will need to agree on a new chief executive, and a new independent director to replace Gerhard Schroeder, the former German chancellor.
TNK-BP’s board has lacked a quorum since Mr Schroeder resigned in December, as AAR sought further litigation against BP over the Rosneft deal. Dividend payments to the partners will not be made until the quorum is restored.
Many now suggest that this dispute cannot be resolved within the current shareholder agreement.
Carl-Henric Svanberg, BP chairman, seemed to hint at a changing mood last month, declaring it “no secret that, over time, we will find other ways forward in Russia”.
BP insists it is happy with its stake in TNK-BP. It trumpets the success of a venture that has returned $19bn (£12bn) in dividends – $3.7bn last year alone – from an original $8bn investment, and accounts for 29pc of BP’s production.
But analysts at UBS argue that it would be “interesting for BP to sell”. BP’s new strategy “stresses value not volume”; BP without its TNK stake would be “a cleaner investment”, they suggest, the lower production volumes “irrelevant in terms of BP’s capabilities”.
BP has so far sold $23bn of assets against the $38bn it has targeted to pay for the Gulf of Mexico disaster. The value of its TNK-BP stake would be hotly contested, but would certainly cover the shortfall.
As for AAR’s wishes, RBC Capital markets analyst Peter Hutton points out it is “more complex than AAR on one side and BP the other”. After Mr Fridman’s resignation, Mr Khan could look to “consolidate his position” in AAR.
Meanwhile the other oligarchs, Victor Vekselberg of Renova and Leonard Blavatnik of Access, may, some say, want to sell within AAR.
The most common interpretation emerging sees Mr Fridman’s resignation as positioning for AAR selling out altogether – in return for the right price and a foothold stake in BP.
Russian rules prevent the foreign BP owning more than 50pc of the company, but Rosneft is mooted as a possible buyer: AAR came close to selling its stake to Rosneft and BP for $32bn last year, in efforts to salvage the Arctic deal.
Whether Rosneft wants to buy will depend a lot on a man dubbed Darth Vader – Igor Sechin, the Russian energy tsar. Mr Sechin masterminded the BP-Rosneft deal. He, too, was embarrassed by its failure and fell from grace.
Last week, he was put back in charge of Rosneft by President Vladimir Putin, amid talk Rosneft is to expand its grip of the oil sector.
His willingness to work again with BP, which was seen as partly to blame for the collapse of the 2011 deal, is not yet known.
Valery Nesterov, analyst at Troika Dialog in Moscow, said Mr Sechin’s role in Russia’s petropolitics was “uncertain” – as was the fate of TNK-BP.
“There is too much corporate politics, and also big politics,” he said. “What will happen, nobody knows.”