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S&P Warns of Fallout From TNK-BP Dispute

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S&P Warns of Fallout From TNK-BP Dispute

August 7, 2008; Page B2

MOSCOW — Standard & Poor’s became the second credit-rating firm in a week to warn that the shareholder dispute at TNK-BP Ltd. is clouding the Russian oil company’s prospects, as an adviser to President Dmitry Medvedev said Russian authorities had allowed themselves to be used in the conflict.

S&P said it had “significant concerns” about governance issues at the company, which is controlled on a 50-50 basis by BP PLC and a group of Russian billionaires. The two sides have been fighting for dominance since the spring, with the Russians accusing BP of running the company like a subsidiary and BP saying the Russian partners are making a grab for control.

S&P cut TNK-BP’s long-term credit and debt ratings by one level, from double-B-plus to double-B, and forecast that the dispute will mean lower production next year for Russia’s third-biggest oil producer. The assessment came a day after Moody’s Investors Service changed its outlook for the company to “developing” from “stable.”

Wednesday’s downgrade “reflects our significant concerns over the major governance issues at TNK-BP,” S&P said, adding that talks to resolve the dispute seemed stalemated.

A TNK-BP spokesman said the company was “disappointed” with S&P’s assessment and that performance remained robust. A BP spokesman said, “Sadly, it appears that Bob Dudley’s prediction that the current dispute would hurt the company is coming true.”

Robert Dudley, TNK-BP’s chief executive, is working from an undisclosed location after leaving Russia complaining of “sustained harassment,” while Chief Financial Officer James Owen resigned this week, saying the dispute had made his position untenable. S&P said the company’s strategic direction and financial policies were becoming increasingly unpredictable as a result. It added that there was a risk of adverse legal and regulatory issues in what it called Russia’s “weak” legal environment, and raised the prospect that minority shareholders might sue.

Stan Polovets, CEO of a consortium called AAR that represents the Russian partners, declined to comment.

Igor Yurgens, an influential adviser to President Medvedev who works outside the government, called on both sides in the dispute to make peace and for the government to soothe investors whose concerns have helped send the Russian stock market tumbling to a 22-month low.

Speaking on the Ekho Moskvy radio station, Mr. Yurgens said it was “indisputable” that the authorities had allowed themselves to be used in the conflict. BP-aligned employees have faced a barrage of official problems that BP says were orchestrated by AAR. AAR has denied that.

Roland Nash of Moscow-based finance house Renaissance Capital said the dispute was damaging Russia’s reputation. “It only serves to confirm all the prejudices that people have about doing business in Russia,” he said.

TNK-BP’s stock on Wednesday dropped almost 4% in Moscow trading, its biggest decline in more than three months.

–Guy Chazan contributed to this article.

Write to Andrew Osborn at

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