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BP to Fight for Control of Venture

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BP to Fight for Control of Venture

Tension Increasing 
In Russian Dispute; 
Earnings Rise 28%
By GUY CHAZAN
July 30, 2008; Page B5

LONDON — BP PLC will use “all legal means” at its disposal to fight its partners in TNK-BP Ltd., the U.K.-based company’s chief executive said Tuesday, ratcheting up the tension in a dispute for control of the Anglo-Russian joint venture.

“We’ll see who is the weakest partner,” Tony Hayward told reporters as he unveiled BP’s strong second-quarter results. Soaring oil prices sent net income up 28% to $9.47 billion, or 50.3 cents a share, from $7.38 billion, or 38.4 cents a share, in the same period last year.

[Tony Hayward]

The earnings demonstrated TNK-BP’s importance to BP’s bottom line. The venture earned $1.35 billion for BP in the quarter, more than double the year-earlier amount. That accounted for 14% of BP’s total net income and 24% of its global production. Revenue rose 52% to $110.9 billion, compared with $73.1 billion a year earlier.

Mr. Hayward was speaking five days after TNK-BP Chief Executive Robert Dudley was forced to leave Russia after failing to get his work visa renewed. His departure marked a major escalation in the conflict between BP and its Russian partners, a group of billionaire businessmen led by Mikhail Fridman of Alfa Group.

Mr. Hayward said Mr. Dudley had left Moscow because “he had got to the end of his tether” with the “perpetual harassment and interference with his day-to-day life.” Mr. Dudley was, Mr. Hayward said, recovering from “weeks and weeks of, frankly, personal intimidation” at a secret location in Central Europe.

There are widespread doubts as to Mr. Dudley’s ability to run the company from outside Russia. Analysts have compared TNK-BP to OAO Yukos, the Russian oil giant whose management was also forced to flee Russia after a series of regulatory and tax probes. Despite their efforts, they were unable to stop the Russian government from dismantling and nationalizing Yukos.

Mr. Hayward dismissed the comparison, saying BP retained a strong presence in TNK-BP. But he acknowledged that running TNK-BP from outside Russia was “not sustainable for years.”

Stan Polovets, CEO of AAR, the consortium that represents the Russian shareholders of TNK-BP, said BP has no choice but to replace Mr. Dudley. “How can you run a company the size of Chevron with 60,000 employees from a remote location?” he said.

Mr. Polovets reiterated AAR’s demands that BP nominate a new, independent CEO, agree to add independent directors to the TNK-BP board, and allow equal representation on the boards of the company’s subsidiaries. “All our proposals have been rejected or ignored,” he said.

The dispute between BP and AAR broke out in the spring when AAR demanded Mr. Dudley’s dismissal, accusing him of running TNK-BP as a subsidiary of BP. BP says the accusation is a smokescreen for AAR’s efforts to seize control of the company.

–Andrew Osborn contributed to this article.

Write to Guy Chazan at [email protected]

http://online.wsj.com/article/SB121731317961292773.html

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