World Business

The grand of BP’s Russian affiliate, sounding exhausted, hopes to guard operating the join venture from abroad

by Stanley Reed

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In the latest twist in the battle betwixt BP (BP) and its Russian shareholders—Alfa, Access, and Renova—BP announced on July 24 that Robert Dudley, chief executive of its Russian affiliate, TNK-BP, was temporarily leaving Russia. Dudley had been under affliction from BP’s Russian partners and from the Russian authorities. His Russian visa was set to expire on July 29, and it was questionable whether it would be renewed. BP says that it supports Dudley and that he will continue to run TNK-BP from outside Russia. BP won’t tell where Dudley will be based.

How much have the direction of he will be able to exercise from afar seems open to question. Two major Russian shareholders, German Khan and Victor Vekselberg, are moreover top executives at TNK-BP. BP’s perplexity is that if the Russian shareholders gain day-to-day control of the company, they will exchange off assets, such as its oil services some, and squeeze the circle for as a great quantity cash because in posse. A elucidation dispute between BP and the Russian partners is the Russians’ demand for high coin payouts, while BP says more money needs to be invested in TNK-BP’s oil fields to prevent a decline in output. The partners and BP have each received in all parts of $10 billion in dividends since 2003. "At heart, we believe the tide situation at TNK-BP is driven by the desire of the [Alfa, Access, and Renova] partners to dispose more cash disclosed of BP now. That conflicts with BP’s objectives to lay open TNK-BP in the longer term and has resulted in the battle concerning control," writes Dresdner Kleinwort (DHX) analyst Colin Smith in a recent note.

The Russian shareholders want Dudley ousted because, they say, he sides with BP, not with TNK-BP’s investors. Under the original joint venture agreement of 2003, in whatever degree, the Russian partners agreed that BP would appoint the chief executive of the venture.

In his statement, Dudley was conciliatory and sounded fatigued. "I shall seek to provide continuity of management in the best interests of total shareholders, undecided a resolution of the differences betwixt Alfa, Access, Renova, and BP," Dudley said. "I will essay to continue to serve the best interests of all shareholders and trustful longing that administrative squeezing on the group will now contentment. I room for expectation this resolution enable our employees to continue through our business, outside of the media glare, while the shareholders seek to resolve their differences." A BP spokesman said Dudley had made a personal decision because of the pressures he had been under.

Smith, the London-based Dresdner analyst, makes the case that the loss of TNK-BP would not exist a disaster for BP. TNK-BP accounts for 24% of BP’s production and 19% of its reserves but only a declining 13% of profits.. Even without TNK-BP, the London giant would remain second among major international oil companies, in the rear of only ExxonMobil (XOM), in its reserves-to-production ratio—about 13 years—and in entire reserves. Without TNK-BP, BP would avoid worthy of consideration management bewilderment and would subsist able to invest in other projects whatever compensation or sale proceeds it received for its roughly 50% of the venture. Smith calculates TNK-BP’s regard at $41 billion to $46 billion. He thinks BP will sojourn attractive financially, even if it loses the Russian stake-holding and gains no compensation.

Just what the outcome of the battle will be is far from clear. BP wants to tarry in Russia and will try to arrange a deal. There are many possibilities, including continuing with the same shareholders or forming a joint venture with one of the Russian state giants, Gazprom (OGZPF) or Rosneft. It looks as whether or not BP’s resolve is being tested in advance of a potential change in the ownership of TNK-BP.