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The Guardian: Kremlinoilogy

Tuesday 20 March 2007

One part of BP’s empire has not been overwhelmed by the company’s sea of troubles over the past 12 months. The joint venture in Russia, TNK-BP, has continued to gush profits and improve production volumes. True, the Kovykta gas project in Siberia has met problems from local environmental agencies but there has been nothing to compare with Shell’s headache at Sakhalin.

In short, TNK-BP seemed to be an example of how Lord Browne, the chief executive, having been burnt the first time by Russian oligarchs, got it right at the second attempt. He invested directly in a Russian company and avoided fancy footwork such as production-sharing agreements; TNK-BP is a straightforward joint venture in which BP has 50%.

Unfortunately, nothing in the Russia energy industry stays straightforward for long. Remarks by the TNK-BP chief executive, Bob Dudley, which we report today, suggest the Kremlin is taking a close interest in the company and would like to see a restructuring of the 50% held by Russian interests. Out would go BP’s long-standing partners, in would come a state-backed mega-enterprise such as Gazprom or Rosneft.

Mr Dudley professes to be sanguine; BP investors are unlikely to be so relaxed. Many were uncomfortable at the way BP was pressured, or encouraged if you prefer, to write a $1bn cheque to support last year’s flotation of Rosneft. If the joint venture is now to be with Gazprom, which takes instruction directly from the Kremlin, the political risks will escalate, however many times BP tells us the safest place to be in Russia is in bed with the government.

The good news is BP has recouped its TNK investment in only a few years. The bad news: the Kremlin may see that as a cue to increase its slice of the pie.

http://business.guardian.co.uk/story/0,,2037948,00.html

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