The immediate cause of BP’s latest Russian crisis is the ruling last month of an arbitration panel in Switzerland. But its roots spread all the way to the Gulf of Mexico, and as far back as the company’s last but one chief executive. And it all reflects the company’s floundering attempts to secure production growth in a world of dwindling oil resources.

In March the tribunal upheld an earlier London court injunction against BP’s $16bn share-swap and Arctic exploration deal with state-owned Russian oil giant, Rosneft. The action was brought by Alfa Access Renova (AAR), half-owners of BP’s existing Russian joint venture, TNK-BP. AAR claims the Rosneft deal breaks the terms of the TNK-BP shareholder agreement, which gave the joint venture first refusal on future BP deals in Russia. BP denies the accusation, but the conflict is not remotely surprising given the partners’ turbulent history.

It was Lord Browne who set up TNK-BP in 2003. But the deal raised eyebrows from the start, since BP’s new partner, AAR, was owned by four billionaire ‘oligarchs’. It was all the more surprising since Lord Browne had already had dealings with the most prominent, Mikhail Fridman, and come off worst.

In 1997 BP bought a 10% stake in Siberian oil producer Sidanco for $570m, signing the deal in Tony Blair’s office. But unbeknownst to BP, the management had been stripping cash out of the company’s main operating subsidiary, which soon went bust, costing BP a $200m write-off. Then Mikhail Fridman’s oil company TNK entered the fray, manipulating the insolvency process to secure a 25% stake in Sidanco, and effectively forcing BP to invest another $375m to protect its position. In short, BP had been shafted.

Asked why BP hadn’t tried to do a deal with TNK over Sidanco, a senior executive reportedly said “you don’t talk to someone who’s stolen your wallet”. Yet four years later Lord Browne entrusted TNK with $7bn.

Although risky, there was a certain logic to the TNK-BP deal: BP had nowhere else to go. The company had disappointed the stock market by repeatedly missing production targets, and the ‘wild east’ was one of the few places left that could provide a major boost to the company’s output. By 2005 BP’s production had risen 20%, but as output in Europe and America continued to slide, it was soon casting around for another growth injection.

Under Tony Hayward, BP focussed increasingly on deepwater production, especially in the US Gulf of Mexico, as the global decline of onshore and shallow-offshore production forced the industry to drill in ever more challenging locations. But with US deepwater effectively closed to BP after the Macondo disaster, the company turned to Russia once more.

The Rosneft deal was announced in January with customary fanfare and Energy Secretary Chris Huhne in attendance. The deal would give BP access to an area of the South Kara Sea “roughly equivalent in size and prospectivity to the UK North Sea”, and chief executive Bob Dudley looked forward to exploiting “one of the world’s last remaining unexplored basins”.

Dudley of all people should have known the oligarchs would cut up rough. As boss of TNK-BP during a previous dispute in 2008, when BP’s partners took exception to their opening discussions with Gazprom, he was forced out of Russia by a campaign of administrative harassment, and had to run the joint venture from secret locations around the world.

At one point during his negotiations with the oligarchs, Lord Browne felt compelled to ask them “are you going to take the money and run?” Now his successor must heartily wish they would, and is probably cursing the terms of Lord Browne’s deal that has given them so much leverage over BP’s future.

But it seems the oligarchs are not going anywhere soon. They have rejected BP’s offers to cut them into the Rosneft exploration deal, or to buy them out altogether – at least, not at a price BP can justify to its shareholders – and seem to be holding out for stakes in BP and Rosneft, which neither company will accept.

The oligarchs clearly think they have BP over a barrel with their open-ended injunction against the Rosneft deal. But much of their short term advantage will evaporate when the Rosneft deal itself expires on 16 May. Who will blink first?

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