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Dust-Up Between BP and Russian Investors Threatens TNK-BP Joint Venture

by Jack Rosebro

A quartet of Russian oligarchs—Mikhail Fridman and German Khan of the Alfa Group, Viktor Vekselberg of the Renova Group, and Len Blavatnik of Access Industries—are pressuring BP to replace Robert Dudley, the BP-nominated CEO of TNK-BP, a joint British-Russian oil venture, and shake up its board of directors.

The TNK-BP joint venture is a significant contributor to BP’s total production. In the first quarter of 2008, BP’s share of output from TNK-BP was 818,000 barrels of oil per day and 512 mmcf/d of natural gas per day, for a combined 906,000 barrels of oil equivalent per day—33.4% of BP’s oil production and 23% of its total liquids, oil and natural gas production for the quarter.

BP has claimed that the demands, as well as ongoing inter-corporate espionage, are part of a strategy to seize control of TNK-BP, and some industry analysts believe that the long-term goal is to secure a stake in the joint venture for Gazprom, Russia’s state-owned oil and gas monopoly. In December 2006, Gazprom was able to secure a controlling interest from Royal Dutch Shell, Mitsui, and Mitsubishi in the massive Sakhalin II oil and gas project (earlier post), following years of interference from Russia’s environment agency.

At a Stockholm press conference, BP chairman Peter Sutherland criticized the tactics of the four, who own 50% of TNK-BP, as well as the lack of state response to the dispute.

This is just a return to the corporate raiding activities that were prevalent in Russia in the 1990s... The leaders of the country seem unwilling or unable to step in and stop them. This is bad for us, bad for the company, and, of course, very bad for Russia.

—Peter Sutherland

Sutherland also dismissed Gazprom’s recent prediction that oil prices could rise to $250 per barrel as “apocalyptic”.

Relations between TNK-BP partners have deteriorated sharply this week, with Fridman comparing Sutherland’s comments to “Goebbels propaganda” and “Nazi tactics” in a recent interview with Russian business daily Vedomosti.

TNK-BP is a privately owned, British Virgin Islands-based, vertically integrated oil and gas company with upstream and downstream operations located primarily in Russia and the Ukraine. The company claims total proved reserves of 9.982 billion barrels of oil equivalent.

Oil production from TNK-BP has been flat or trending down slightly, from 832 thousand barrels per day in 1Q 2007 to 829 mb/d in 4Q 2007 to 818 mb/d in 1Q 2008. The company expects production to rise again in 2009 when new projects come on line.

Tnkbp2
TNK-BP’s major upstream projects. Click to enlarge.

TNK-BP is developing over a dozen new major projects, many of which are located in remote areas with limited or no infrastructure and require significant investment of capital and technology. The more advanced are several large greenfield projects: the Uvat group of fields and the Bolshekhetsky project in West Siberia, and the Verkhnechonskoye field in East Siberia.

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Comments

J T

It sounds like the Russians are not so keen to have American Bob in charge.
This could have a lot to do with the way the Americans tend to run oil business.

Neil

Russia ... not really a place you'd want to invest in.

secgreen

Trouble is J T - BP stands for *British* Petroleum.

J T

@ secgreen
BP is British
Bob (Robert Dudley) is American.

FormerUSSRcitizen

Russia was and still is an evil empire with all its atributes. This contry is governed by criminals and KGB with worst possible corruption ever immeginnable. Stay away from the state of Russia!

K

I suspect this is just another Russian attempt to bully out foreign partners after those partners have served their purpose.

The foreign oil companies had much to offer Russia in the 1990s and they were welcomed. Now Russia sells huge amounts of oil and natural gas to the EU and the money is rolling in. And they don't need no stinking partners.

Under Putin Russia slowly but steadily became less agreeable in many ways. He is now Prime Minister, expect his policies to continue.

Only a few months ago Russia suddenly claimed huge amounts of the Arctic seas. Canada likes that not at all and the US isn't thrilled either.

Motive? Perhaps Russia thinks there are big oil and gas prizes under that ice. Or they could be expecting the ice to go and and shipping to use the route.

garth

BP must be desperate or simply driven by greed for the potential profits in Russia.

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