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Another Rough Russian Road

Another Rough Russian Road

By David Lee Smith June 13, 2008 

I don’t know how the latest Russian energy row will turn out, but it could be a reason to steer clear for a while of BP(NYSE: BP), whose new management and otherwise improving fortunes have made it attractive recently.

I’m referring to BP’s increasingly swords-points relationship with its trio of Russian billionaire partners in its TNK-BP joint venture. Unfortunately for the London company, the venture accounts for about a quarter of its global production, and so a total unraveling of that relationship would be a significant blow to its efforts to right itself following a string of misfortunes.

The expanding agitation between the company and its Russian partners was described in detail in a Wall Street Journal piece on Thursday. But, despite its importance to both BP and other majors that want to continue to work in Russia, it boils down to an increasing inability of anyone in the partnership to agree on much of anything anymore. According to the Journal, some observers believe the “crescendo of complications” resembles the 2006 attack on the Russian interests of Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B).

That attack ended with the sale of Shell’s interests on Sakhalin Island — at what appeared to be a considerably below-market price — to mammoth Russian gas producer Gazprom. It also proved to be one of many instances of western companies being roughed up by the powers that be in the countries that used to make up the Soviet Union.

In neighboring Kazakhstan, Italy’s Eni (NYSE: E) has been victimized by muscle-flexing by the Kazakh government. And even ExxonMobil(NYSE: XOM), which, unlike Shell, continues to work successfully on Sakhalin, for now has sworn off new projects in Russia.

BP, for its part, has overcome a number of negatives of late, including the abrupt resignation of its longtime CEO Lord Browne for personal reasons, a disastrous explosion at a Texas refinery, and pipeline leaks in Alaska. But, given the increasing inability of Russian oil interests to make nice with their major oil company playmates, it’s easy to see the TNK-BP venture coming completely unglued.

On that basis alone, and while I have been warming to BP’s direction under its new CEO, Tony Hayward, I’m inclined to give the company a somewhat wider berth for now.

http://www.fool.com/investing/general/2008/06/13/another-rough-russian-road.aspx

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