BP and Russian oligarchs play chicken

 
BP logo TNK-BP accounts for a quarter of BP's output

There are two characteristics of BP's Russian joint venture: it has generated many billions of dollars of dividends for the company; and it has been a total nightmare to manage, largely because of years of appalling relations between BP and its billionaire oligarch partners.

A new governance low has been hit with the resignation of one of the oligarchs, Mikhail Fridman, as chief executive of the joint venture. What is going on and why?

Well BP believes that at least two of the oligarchs, Victor Vekselberg and Leonard Blavatnik, would like out - or at least they would like to convert their holding in the joint venture into cash and BP shares.

This is consistent with the statement by Alfa-Access-Renova, the oligarchs' consortium, that they have "lost faith in BP as a partner".

BP's belief is that the oligarchs regret the way they frustrated last year's attempt by the British oil giant to form a joint venture with the Russian state-owned energy colossus, Rosneft, which could have involved Rosneft buying out the oligarchs.

So BP sees Mr Fridman's resignation as part of a new campaign to put pressure on BP to organise a whole or partial buyout of their holding in TNK-BP.

The problem for BP is that it fears it could end up losing all of this stunningly valuable asset if it were to take its stake above 50% - because of a Russian prohibition on foreign businesses acquiring majority control of strategic assets.

BP does not wish to lift its stake above 50%, for fear of damaging those all-important relations with Putin's Kremlin. And right now BP believes it is on pretty good terms with the Russian government.

There is an impasse, which means that TNK-BP will probably function on autopilot for a while, managed by five senior executives but without direction from its own board.

In those circumstances, dividends won't be paid to either BP or the oligarchs. Colossal amounts of cash running to billions of dollars will build up in the coffers of the joint-venture, until either the oligarchs or BP become antsy about having rights to all that lovely money but not being able to touch it.

In this corporate soap opera, the end is only predictable by those with a talent for outlandish fiction. I will let you know when I've constructed a denouement so absurd as to possibly be true.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +1

    Comment number 47.

    "Methinks Maggie n Ronnie celebrated cold war victory a little prematurely.."




    More than 20 years after Soviet Union's collapse (precipitated by at least 20 years by R. Reagan) Russia still has backward III world economy based on export of raw materials.

    Unable to built a decent airliner, computer, microchip, MRI, sub, etc.

    With its space program experiencing failure after failure.

  • rate this
    0

    Comment number 46.

    gort2012 - good side swipe

    - take it you democratically avoid all refined oil products

    ride a bicycle

    and use wind up batteries for the TV ?

    Hard to keep going through my favourite programmes I've always found.

  • rate this
    0

    Comment number 45.

    41 PB - they're looking for 625 million to re-finance in a sector with wafer thin margins, unionised labour and european over capacity in refining. The investment queue will be short. Options are - govt support with 50% wage cuts or re-alocate the capital to another more profitable sector. The macro solution is a no brainer, but its rather different if you work there. A sign of the times.

  • rate this
    0

    Comment number 44.

    The NOC's have the most attractive acreage, ICO's have capital, technology and access to global markets. However, national govts have the sovereign right to set the rules and change them when they please. The oligarchs are finessing this risk & BP exist to try to manage it. Its no accident that this change arises after Putins re-election. I'm guessing Igor Sechin is on Mr Dudleys xmas card list.

  • rate this
    +3

    Comment number 43.

    It's called PROTECTIONISM - Russian style

  • rate this
    -1

    Comment number 42.

    Hmm, meeting of high morals

    Russian "democracy" & BP "oil"

    Well at lest both sides are getting rich enough to afford Geiger-counters for their business lunches or to buy properties without a shore line next to an oil rig.

    A real feel good story.

  • rate this
    0

    Comment number 41.

    #40ComradeOgilvy

    There is Business News. It's just that everybody is quietly ignoring it.
    This oil story will run and run.
    Unlike this one:
    http://www.bbc.co.uk/news/uk-england-essex-18239627
    Coryton supplies 20% of the South East's oil.
    Pumps will run dry just as the Olympics are winding down and people will want scapegroats.

    Well scrape the bottom of the barrel all they want. No oil is no oil.

  • rate this
    0

    Comment number 40.

    All the commenters that are baying for more "business" news... here it is.

    It's a bit quiet here though isn't it?

  • rate this
    0

    Comment number 39.

    Whatever happens BP will loose out, just like they always do with these joint ventures.

  • rate this
    +1

    Comment number 38.

    You can look under stones, look behind peoples backs, look anywhere you like - and what do you see? Putin.

    He is busy outsmarting the oligarchs. BP can only look on.
    BP might be playing but they are not a player.

    Putin and his Russian State ultimately hold all the cards.

    Expect similar in other fields too.
    The Russian State is rising.

    The oligarchs know their time is limited.
    Being Putined..

  • rate this
    0

    Comment number 37.

    19. CC - The current new UK warship on station could eliminate the entire Argentinian airforce (not updated since the 80's war) on the ground before scramble

    methinks you exaggerate a trifle, however you are right that the Argentines are not up to an invasion. We now sensibly have the deterrents in place (airfield, Typhoons & soldiers), to prevent any thought of invasion.

  • rate this
    0

    Comment number 36.

    What BP need to do is get out of Russia by selling its shares in TNK-BP to Gazprom Neft or Rosneft. Better still Gazprom Neft or Rosneft should takeover the company!

  • rate this
    +2

    Comment number 35.

    @08 'Ken B'.
    ~~
    Well you need to ask Halliburton about that mess - apparently they are very busy fracking in the UK - no questions asked.

  • rate this
    0

    Comment number 34.

    Robert Peston
    "denouement so absurd"

    "Vladimir Putin has seized the initiative, setting aside the lack of help for Russia in time of need, seeing ahead to many returns of need in turn across all the world, proposing the equal sharing of stewardship, backed by global citizen-income-equality, trust allowing rational global investment compromise between small start-ups & major foci"

    Thanks!

  • rate this
    0

    Comment number 33.

    Methinks Maggie n Ronnie celebrated cold war victory a little prematurely..

    25 years later, we're full of fiat debt whilst the Russians have all the oil, control the gas etc - & have bought gold prodigiously whilst dumping the petro $, US gilts etc

    As BluesBerry has said for some time, EZ a side show (& finance markets death rattle) compared to what's ahead for USD. Another piece of the jigsaw..

  • rate this
    0

    Comment number 32.

    The Falklands may be a safer bet, but the reserves there are, unfortunately, a drop in the ocean compared with Russia. At least, it's the sort of place that will need a BP or a Shell to develop ... if it's worth developing.

  • rate this
    0

    Comment number 31.

    25.CC

    Personally, I wouldn't want to land a Typhoon on a sub, but I'm sure our brave boys will be fine.

    Our military, to be fair, is better than the Argentinian one, but staging a foreign excursion alone at such a distance is probably now beyond us.

  • rate this
    0

    Comment number 30.

    Then, ExxonMobil last August stepped in; it snapped enormous Arctic assets.
    Then, Italy's Eni last month struck its own Arctic deal with Russia.
    Then, earlier this month, Norway's Statoil got an Arctic deal.
    It does seem sloppy; Russians do not like slop… As you can see, they will want to tidy things up & they will take their time doing it.

  • rate this
    +1

    Comment number 29.

    Fridman's resignation is blunt signal discord remains. Fridman - one of Russia's most skilled oligarchs - is Chairman of Alfa Group, holding company. Fridman had succeeded repeatedly in tying BP in knots during political scrapes. In last year's row, for example, Fridman appeared to be behind AAR's winning strategy of getting at least 3 EU tribunals to declare BP's Arctic venture ILLEGAL.

  • rate this
    +3

    Comment number 28.

    Don't all energy companies play games with each other all day long - as do the commodity brokers - and ultimately us - whether it's oil or gas?

    Robert, your last paragraph is under-estimated, or missed by many, and more telling of reality in market behaviour who toy with prices that we have no control over and that our government tax us on. So, no change then - ordinary people are still shafted?

 

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