TNK-BP is to be transformed into an independent oil major with international operations and bigger downstream interests under a deal between BP and its Russian partners.

However the parties to the settlement of the six-month long dispute between BP and the Alfa-Access-Renova (AAR) consortium of Russian oligarchs over control of TNK-BP, hinted at continuing differences over the future of the company.

The AAR consortium said that the $54 billion (£30.5 billion) joint venture would expand outside Russian territory and into downstream activities such as petrol retailing. BP, however, insisted there would be no fundamental change in strategic direction, suggesting that the shareholder agreement that controls dividends and investment in TNK-BP remains unchanged.

BP, whose shares rose 4 per cent on news of the deal, appears to have bowed to many of the Russian shareholders’ demands by agreeing that Robert Dudley, the chief executive of the joint venture, would leave by the end of the year.

A spokesman for BP confirmed that TNK-BP could emerge as a competitor to the British company. “We don’t have a problem in competing with TNK-BP in key areas. We don’t have a problem with [creating] an international oil company.”

An independent Russian-speaking chief executive is to be appointed in December and will be free to appoint his own executives to a slimmed-down management committee. The TNK-BP board has been expanded to include three new independent directors and four representatives each from BP and AAR. The agreement includes proposals to float up to a fifth of the subsidiary on stock markets in London and Russia, at an appropriate point.

Tony Hayward, the chief executive of BP, described the agreement as a “sensible means of resolving a situation that could not continue without causing serious damage”. He said that BP was giving the company a little bit more freedom to allow it to grow. “This agreement has the potential to set the stage for the next phase of TNK-BP’s development. It would be disingenuous to pretend that I wasn’t infuriated by some of AAR’s behaviour. People are not accustomed to BP going bare knuckle but we have shown we can if we have to protect our investments.”

He added that through the turmoil, which saw Mr Dudley forced to leave Russia and the departure of 88 seconded staff in a dispute over work permits, the venture had outperformed all other Russian oil companies.

Mr Hayward said that an IPO would be considered subject to board and government approvals. “The liquidity [that would result from a listing] would benefit both major shareholders and give TNK-BP a greater degree of independence from two majority owners,” he said. “But if TNK is to be fully valued on the financial markets we can’t afford a repeat of recent events.”

Mikhail Fridman, the chairman of Alfa Group and chairman of TNK-BP, said: “By agreeing to enhance the system of corporate governance of TNK-BP and enabling the company to compete on the international stage, we are beginning an exciting new chapter in the development of a great company.”

Analysts welcomed the apparent resolution of the conflict, which has dogged BP’s share price since it erupted into the public arena this year. Some had feared that BP would lose its Russian business entirely, as the Russian Government has made it increasingly difficult for foreign investors and made it clear that it favours state-owned energy companies.

Igor Sechin, Russia’s Deputy Prime Minister, a close ally of the Prime Minister, Vladimir Putin, and chairman of state-controlled Rosneft, praised the partners for resolving their differences. “We support TNK-BP’s development and believe this company has excellent long-term prospects,” Mr Sechin said.

TNK-BP made record profits of $4.7 billion (£2.6 billion) in the first half of this year, compared with $2.1 billion for the same period last year. Revenues were $28.3 billion compared with $17 billion in the first half of 2007.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4678533.ece