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The Bitter Battle To Lead TNK-BP

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The Bitter Battle To Lead TNK-BP

Dudley Pushes Back 
As Russian Group 
Seeks His Ouster
By GREGORY L. WHITE
July 23, 2008; Page B1

MOSCOW — Robert Dudley is chief executive of Russia’s TNK-BP Ltd., one of the biggest privately owned oil companies in the world. But as its two powerful shareholders, BP PLC and a group of Russian billionaires, fight for control of their 50-50 venture, the American oil-industry veteran is running what looks like a country on the verge of a coup.

[Robert Dudley]
Itar-Tass/Landov
Robert Dudley, CEO of TNK-BP, plays a key part in an unusual fight for control of the oil venture.

Instead of proxies and board debates, their battle is one of what several people inside the company call “trench warfare” — constant maneuvering for leverage over key corporate decisions between Mr. Dudley and his supporters in management and the two Russian shareholders who also hold top jobs at the company and have publicly called for his removal. Amid the internal corporate machinations, TNK-BP and its employees have been subject to visa-renewal problems that have caused dozens of foreign employees to leave Russia, as well as a flood of tax, police and other probes, since the shareholder conflict exploded this spring.

How the Kremlin handles the TNK-BP conflict and Mr. Dudley’s travails has emerged in the eyes of many in the West as a key test of new Russian President Dmitry Medvedev, who has pledged to strengthen the rule of law.

People close to the company say executives increasingly fear Mr. Dudley will be forced out of Russia in the next few weeks. The Russian shareholders have said repeatedly they are confident they will prevail. BP says Mr. Dudley will remain CEO even if he can’t work in Russia, though people at TNK-BP admit that keeping control from exile is likely to be extremely difficult.

Running the company now “is like driving a car and sometimes the brakes work and sometimes they don’t,” says Mr. Dudley in an interview, held away from TNK-BP’s offices. “I spend a lot of time holding meetings out on the balcony of my office,” he adds. Fearing eavesdroppers, he and colleagues say they have taken to carrying several mobile phones and writing key words on paper during conversations. An informal network of allies throughout TNK-BP help provide intelligence, people close to the company say, giving early warning of attacks such as last week’s lawsuit filed in a Moscow court by a group of employees to have Mr. Dudley removed.

The Russian shareholders have denied putting pressure on Mr. Dudley or eavesdropping.

Weekly meetings of top management, always tense, haven’t been held since the conflict escalated in the spring. Instead, operational decisions are made by paper ballots circulated among top managers, company officials say.

With TNK-BP in the midst of what he says is its best year ever in terms of results — first-half earnings are due out this week — Mr. Dudley brushes off criticism from the Russian shareholders of his work as CEO since TNK-BP was set up in 2003. In its first five years, TNK-BP delivered the highest total return among major Russian oil companies, paying over $18 billion in dividends, according to BP.

“It’s not me personally, it can’t be performance, it’s the role, the check and balance” between the interests of the shareholders, Mr. Dudley says. But he says he won’t step down. “I’ve got an obligation to hold the line for both sets of shareholders.”

When TNK-BP was set up in 2003, BP and its partners — led by Mikhail Fridman of Alfa Group, Len Blavatnik of Access Industries and Viktor Vekselberg of Renova — negotiated a delicate system of power-sharing inside management to ensure neither side could force its will on the company. It created a complex patchwork, limiting the CEO’s authority but also that of the Russian shareholders in management, Mr. Vekselberg and Alfa partner German Khan.

The Russian shareholders say Mr. Dudley, a former BP executive, consistently favored the interests of his former employer and didn’t do enough to build the value of TNK-BP.

“He thinks he works at BP,” Mr. Fridman said in an interview last month. “That’s the main problem.” Mr. Fridman, chairman of Alfa Group and the single biggest Russian shareholder in TNK-BP, has become the public face of the Russian shareholder consortium, AAR.

Mr. Dudley got a letter this week from AAR accusing him of spending more than was approved on capital projects this year and threatening legal action against him if he continued. AAR argued that the company shouldn’t spend so much money building reserves, which is important only to BP, but instead should focus on boosting current production. Mr. Dudley says that “shows the absurdity” of AAR’s position. “Boosting reserves is what oil companies do,” he says.

BP staunchly backs Mr. Dudley and has blocked the Russian shareholders’ attempts to remove him for the last several months.

[timeline]

Now, however, it appears that might not be enough. Russian authorities said this week they won’t grant Mr. Dudley a new work visa because of a dispute between the shareholders about whether his contract is valid. He has to leave Russia unless authorities renew his current transit visa by July 29. Mr. Vekselberg told immigration authorities last week in a letter that Mr. Dudley’s contract expired at the end of last year. BP says his contract was automatically renewed after Dec. 31.

So far, immigration authorities have agreed with the Russian shareholders. About 20 other foreign employees are preparing to leave Russia because Messrs. Khan and Vekselberg refused Mr. Dudley’s requests to apply for work permits for them. Mr. Dudley hasn’t left Russia since March for fear he might not be let back in, according to people close to the company.

As an administrative squeeze on the company from labor regulators, tax inspectors and prosecutors has intensified in the last few weeks, people close to BP and Mr. Dudley say they have come to believe that the Kremlin has sanctioned the attacks, despite official statements from top officials that the conflict is for the shareholders to resolve. Ultimately, these people say, the Kremlin is seeking to gain control over the venture for a state company like OAO Gazprom, likely leaving BP as a minority partner.

“People are really contemplating the meltdown of the company,” says one senior TNK-BP executive.

Earlier this month, BP said it was reassigning 88 of its 148 specialists — BP employees assigned to TNK-BP. On Tuesday, BP said it is reassigning the remaining 60 specialists who had been on loan to TNK-BP because Russian authorities have blocked them from working for months.

The Russian shareholders argue that the BP specialists and TNK-BP’s own foreign staffers — it has 85 — are overpaid and needed only in smaller numbers. Mr. Dudley questions that, noting TNK-BP’s operating budget is over $6 billion a year. “It must be about control,” he says.

Some areas of the company without foreign staff are effectively controlled by the Russian shareholders and have ignored Mr. Dudley’s orders.

Because of what he calls insubordination in the legal department, Mr. Dudley now uses outside counsel for many legal issues. Corporate security early this year kept the 148 BP specialists out of TNK-BP’s Moscow offices despite an order from Mr. Dudley to let them in.

For Mr. Dudley, 52 years old, this isn’t his first rough patch in the Russian oil business. In the mid-1990s, he worked for Amoco Corp. in Russia, where another ambitious oligarch — OAO Yukos founder Mikhail Khodorkovsky — pushed the U.S. company out of a Siberian oil deal.

Mr. Dudley came to BP when the British company acquired Amoco and quickly became a top aide to then-CEO John Browne, who offered him the TNK-BP job in 2003. He was also a candidate to succeed Lord Browne when he left BP in 2007, but that job went to career BP executive Tony Hayward.

Mr. Dudley was critical in making the case for BP’s tie-up with TNK when the joint venture was formed five years ago. Many in BP were skeptical, arguing that TNK’s Siberian oil fields were too mature and had little life left in them. But Mr. Dudley, who had long experience squeezing oil out of older assets while working for Amoco in West Texas, had more faith in TNK’s potential. “He had the experience base, he had the confidence of senior managers, and he got on with the Russian shareholders,” said one BP executive.

At TNK-BP, he became Russia’s most prominent foreign CEO and a frequent ambassador for the country’s business climate, even as foreign companies were pushed out of the oil sector.

–Guy Chazan in London contributed to this article.

Write to Gregory L. White at [email protected]

http://online.wsj.com/article/SB121675915105274667.html

 
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