The Wall Street Journal: BP Is Haunted By Fraying Alliance With Russian Partner
May 15, 2008
Tensions are flaring between BP PLC and its local partners at its Russian vehicle TNK-BP Ltd., according to people close to the companies, just as the Russian operation’s future becomes less uncertain.
Those frictions — not a Kremlin campaign to gain control over TNK-BP — appear to be the source of a recent stream of regulatory and legal problems for TNK-BP, these people say. In an effort to resolve the conflict — which both sides say is the worst TNK-BP has seen since it was formed in 2003 — BP Chief Executive Tony Hayward will hold a special meeting in the next few weeks with the three Russian billionaires who control the other 50% of the company, people close to both sides said. The three are Len Blavatnik, Viktor Vekselberg and Mikhail Fridman.
Having been hailed as path-breaking when it was formed, TNK-BP now looks like an anomaly alongside the big state-controlled companies that dominate the Russian energy sector. A lockup clause that would have complicated the sale of any stakes in TNK-BP expired at the end of last year, fueling speculation that the Russian shareholders might sell out to state-controlled OAO Gazprom.
BP, meanwhile, has been negotiating a joint-venture agreement with Gazprom for nearly a year that would combine assets inside Russia — though not necessarily BP’s stake in TNK-BP — with BP ventures elsewhere in the world.
Over the past few months, TNK-BP’s offices have been raided by security agents in an espionage probe, its Siberian oil fields have been audited by environmental regulators, and some 148 foreign specialists briefly had to stay home from work because of visa problems. On Wednesday, TNK-BP said the specialists were again on leave because of an order from a Russian court.
The drumbeat of difficulties led to comparisons to the troubles Royal Dutch Shell PLC faced in 2006 before it sold control of its Sakhalin-2 project to Gazprom. But people close to TNK-BP, and other industry officials following the situation, say there has been no sign of the concerted pressure that preceded Shell’s troubles. The spy probe, for example, appears dormant, say people close to the company. The visa problems were resolved within days of BP going public about them. And while Gazprom in the past expressed interest in buying out the Russian shareholders in TNK-BP, people close to all sides say no talks have been held. BP’s discussions with Gazprom have as yet yielded no deal.
Amid this uncertainty, people close to BP say the company believes the Russian partners are maneuvering to gain leverage in the event they sell out. The Russian shareholders, meanwhile, suspect BP is negotiating over their heads in its talks with Gazprom, according to people familiar with their thinking. They also say BP isn’t careful enough about costs at TNK-BP, where it has management control. “The problem with BP is they don’t pay attention until there is a crisis,” said a person close to the Russian holders.
The flash point at present is the 148 specialists — BP employees assigned to TNK-BP to help in matters like planning where and how to drill wells. BP officials argue that their skills are vital. The Russian shareholders have questioned the cost — in some cases as much as $1 million a year in salary, benefits and overhead.
Just as the visa problems were clearing up, the court order announced Wednesday forced BP to suspend the specialists’ work again. The order, issued last week in the Siberian city of Tyumen, came in a suit brought by Moscow brokerage ZAO Tetlis. It owns a small stake in a publicly traded unit of TNK-BP, and it alleged that the fees TNK-BP pays for the BP specialists amount to an illegal dividend for BP. The next hearing is scheduled for Tuesday.
TNK-BP says the claim is baseless and will fight it, warning that the prolonged absence of the specialists could damage TNK-BP’s ability to produce oil. People close to BP said they suspect it was instigated by Alfa Group, one of the Russian shareholders and a company known for using aggressive tactics against rivals. Tetlis executives couldn’t be reached to comment, but several worked for Alfa companies in the 1990s, according to biographies on the company’s Web site. An Alfa spokesman didn’t respond to requests for comment.
Mr. Hayward, BP’s CEO, has complained about TNK-BP’s troubles in conversations with Alfa chief Mr. Fridman, according to people familiar with the discussions. Alfa officials have denied any involvement, these people said.