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TNK-BP Partners to Settle Conflict

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TNK-BP Partners to Settle Conflict

By GREGORY L. WHITE and GUY CHAZAN
September 4, 2008 3:55 a.m.

MOSCOW — BP Plc is expected to sign a deal later Thursday settling a bitter conflict with its Russian partners in TNK-BP Ltd., a person close to the British company said.

[ROBERT DUDLEY]

Under the pact, BP would agree to remove by the end of this year embattled TNK-BP CEO Robert Dudley, a former BP executive who’s been forced out of Russia by legal problems, and replace him with an independent candidate, this person said. That replacement would be expected to speak Russian, addressing the Russian shareholders’ complaint that top management at the company was too heavily foreign.

“The more of a Russian complexion this deal has the better,” said this person.

The 14-member management board of TNK-BP also would be sharply reduced to streamline decision making. In addition, the deal calls for the board of directors of TNK-BP Ltd. to be restructured and expanded to break a deadlock between BP and its Russian partners that has paralyzed the board’s work for nearly a year.

Under the plan, BP and its Russian partners, known as AAR, would each appoint four members to the board. In addition, there would be three independent directors.

BP also agreed to consider an initial public offering of up to 20% of the shares of a TNK-BP subsidiary, addressing another demand of the Russian shareholders. Each side would retain its 50% stake in the parent company, TNK-BP Ltd., this person said.

The agreement appears to include substantial concessions from BP, but allows the British company to retain its 50% stake in a highly profitable venture that accounts for about a quarter of its production and a fifth of its reserves. Since the shareholder conflict broke out late last year, TNK-BP has suffered unprecedented pressure from Russian government regulators, culminating in a court decision earlier this month that disqualified Mr. Dudley as CEO because of a series of minor paperwork violations involving employee contracts. BP officials suspect the Russian shareholders were behind the campaign of pressure, an allegation the Russian shareholders deny. BP had demanded the harassment stop as part of any deal with AAR.

But BP also had been insisting on keeping Mr. Dudley as CEO, despite objections from AAR that he was biased in favor of BP. After he was forced to leave Russia in late July, however, his ability to control the company was undermined. Two top foreign managers quit. AAR had argued that TNK-BP relied too heavily on costly foreign staff. People close to BP have said putting more Russians in top management would likely strengthen the positions of the two Russian shareholders who also hold management posts, Viktor Vekselberg and German Khan.

For BP, the pact is likely to remove one of the main uncertainties hanging over its share price – which rose in early trading Thursday. Many investors had feared that BP would be forced to give up some of its 50% stake in TNK-BP or lose it altogether. Still unclear is whether a Russian state company like OAO Gazprom will ultimately take a stake in the company.

The Russian shareholders had been pushing for the IPO as a way to set a valuation benchmark for the company in the event they were forced to sell by the Kremlin, people close to the company said.

A formal announcement is expected later Thursday.

Write to Gregory L. White at [email protected] and guy chazan at[email protected]

http://online.wsj.com/article/SB122051222680198757.html?mod=wsjcrmain

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