Possible way out of a minefield

After weeks of guarded, diplomatic language through gritted teeth, BP has been provoked to the point where it is no longer able to be polite.

Peter Sutherland, the company’s straight-talking chairman, yesterday attacked BP’s Russian partners in the TNK-BP joint venture and criticised Russia’s leaders.

His blunt comments to a conference in Stockholm were a sign of how concerned he is about the struggle over TNK-BP, a 50:50 joint venture between BP and the Alfa-Access-Renova group of Russian tycoons. The prospect of a fight against AAR in Russian courts for control of TNK-BP’s key subsidiary looks ominous for BP.

But as the tension mounted this week, evidence has also emerged of the outlines of a possible resolution.

An exchange of e-mails between AAR and BP earlier this month, seen by the Financial Times, shows that the Russian tycoons proposed they should be given an option to swap their stake in TNK-BP for BP shares.

BP responded that it was prepared to enter negotiations to do that, creating a framework for “a longer term progressive sale and purchase of AAR’s interest”.

That deal would have been a huge commitment for BP. Assuming a market value for AAR’s half of TNK-BP of about $25bn, when completed it would have given the Russian tycoons roughly 10 per cent of BP’s equity.

Mikhail Fridman, the chairman of Alfa Group who has recently been the most vocal of the AAR partners, told the Financial Times he did not want BP shares. But for any investor, there is a value in having equity in a public company traded in London and New York, rather than in an illiquid Russian oil business.

A deal that would allow BP to buy out AAR using its paper would only get done with the approval of the Russian government. The next step would probably have been for BP to put TNK-BP into a new joint venture with one of the state-controlled energy groups: either Gazprom, the gas company, or Rosneft, the oil company.

Although Mr Fridman and his partners immediately rejected any such buy-out, a resolution along those lines is still the best outcome for BP.

A partnership with national companies of resource-rich countries is a ubiquitous model in the oil and gas industry and, in general, serves the interests of both partners: both sides want to maximise the long-term value of the resources.

The problem, as Mr Sutherland indicated with his complaint that Russia’s leaders were “unwilling or unable” to help BP, is that it has so far proved impossible to persuade the government to commit to a deal.

The change in administration may be one reason. Russian political analysts say that the new administration under Dmitry Medvedev has not yet reached a consensus on how best to deal with TNK-BP as competing interest groups and the big Russian energy groups vie for supremacy.

Under the presidency of Vladimir Putin, Gazprom was the main beneficiary of Kremlin pressure on foreign oil companies. The deals to oust Royal Dutch Shell as the majority shareholder in the Sakhalin 2 project, and to displace TNK-BP from the Kovykta gas field, both favoured Gazprom. Signs of the changing attitude were apparent at the St Petersburg Economic Forum last weekend. One Russian government official said: “For BP, it is it the best scenario if Alfa sells out to Gazprom. For Russia it is the most harmful scenario.”

He said the Kremlin did not want to reinforce perceptions in the West that Russia was renationalising its oil industry.

BP has been covering all the bases. Over the weekend, Tony Hayward, chief executive, met the chairmen and chief executives of Gazprom and Rosneft.

But he warned this week he was “not expecting an early resolution to a complex situation”.