BP seeks to bring Russian adventure with TNK to an end

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By Ruth Green

When the news came last month that BP was looking to end its Russian tie-up with TNK, few people were surprised.

BP has long been wracked by disputes between its Russian shareholders and this was no clearer than during the Rosneft debacle last year. In January 2011, BP and state-owned Russian energy company Rosneft shocked the world by signing a US$16bn share swap deal to jointly exploit oil and gas reserves in Russia’s Arctic shelf. The deal would have made Rosneft the largest single shareholder in BP, but it was not to be.

Alfa-Access-Renova (AAR), which owns 50 per cent of TNK-BP, claimed that the terms of the share swap deal were in violation of its shareholder agreement, which clearly stipulates that BP must carry out all projects in Russia and the Ukraine through TNK-BP. AAR filed a lawsuit and after retaining Skadden Arps Slate Meagher & Flom, went on to obtain an injunction on the deal in London’s High Court in April last year.

In August 2011, Rosneft publicly announced its plans to sign a deal with BP’s US rival ExxonMobil. Rather than a share swap deal, the terms of the agreement allowed Rosneft to gain access to at least six of Exxon’s oil fields, which includes assets in the Gulf of Mexico and in Texas, as well as giving Exxon access to oil and gas reserves in Russia’s Arctic shelf.

Since the public humiliation of the Rosneft fiasco, things haven’t got much better for BP, which continues to be in significant turmoil as a result of ongoing disagreements among its shareholders. In June, BP announced its plans to sell its 50 per cent stake in TNK-BP. This came as little surprise since sources close to the oil giant stress that TNK-BP’s executive board has been locked in a stalemate position for some time and this has prevented decisions from being made effectively.


  ‘While the shareholder issues continue, BP will continue to have problems in getting on with projects'

Mikhail Fridman, one of the owners of AAR, resigned as chief executive just the previous month and this was widely viewed as the beginnings of a Russian attempt to seize control of the venture. The truth is that Fridman left as it had become too risky for him to personally take decisions to run the company without guidance from the executive board and risk exceeding his powers as CEO.

What is the next step then? It has been suggested that BP is once again in discussions with Rosneft, but most lawyers are sceptical. ‘If BP sells its stake to Rosneft then Rosneft could take over the whole of TNK-BP, but I do not think a 50-50 joint venture between Rosneft and AAR is sustainable in the long run,’ comments one Moscow-based corporate partner.

As for other suitors, likely candidates such as ConocoPhillips and Gazprom have both denied that they have their eyes on TNK. Earlier last month it was reported that Fridman himself was considering buying out BP’s share for close to US$25bn, but he has since denied that any such talks have taken place. BP initially purchased half of BP-TNK for a sum of US$8bn in 2003.

But while the search for a buyer continues, things are not getting any easier for BP, notes one Moscow-based oil and gas partner. ‘While the shareholder issues continue, BP will continue to have problems in getting on with projects and this was shown most recently when AAR prevented BP from getting involved in the Nord Stream project, which would have been an important move for the company.’

BP recently expressed interest in signing a joint venture with Gazprom in a project to extend the Nord Stream gas pipeline which currently delivers gas to Germany under the Baltic Sea. The planned project would see the pipeline extended to deliver Russian gas to the UK. However, after BP informed AAR of its intentions and sought a waiver agreement to allow the deal to go through, AAR refused and BP was forced to withdraw from any further talks. For many, it was the Rosneft deal all over again.

Meanwhile, the shareholder dispute over Rosneft is ongoing, with a Siberian court recently adjourning a hearing to consider a request by shareholder Andrei Prokhorov to gain access to BP’s internal records on the failed tie-up with Rosneft.

For now at least, until BP sells its stake in BP-TNK, it seems there will be a stalemate in its Russian operations both inside and outside the boardroom.