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BP’s Exploration Plans in the Arctic of Russia Draw Opposition From Partners

A version of this article appeared in print on January 19, 2011, on page B3 of the New York edition.

By ANDREW E. KRAMER and JULIA WERDIGIER

MOSCOW — The British petroleum giant BP’s new deal to explore the Russian Arctic in partnership with a state-owned oil company has drawn protests from a group of private Russian investors with whom BP has a separate partnership.

The Russian private partners of BP’s separate and longstanding joint venture here, TNK-BP, say they were not adequately consulted about the Arctic exploration agreement that BP announced on Friday with the state-owned Rosneft.

On Tuesday, a representative of the TNK-BP partners said the Rosneft deal violated a 2003 shareholder agreement that required BP to first consult the management of that joint venture before negotiating new business with others in Russia or Ukraine.

Stan Polovets, the chief executive of the consortium that represents the wealthy Russians in the TNK-BP partnership said on Tuesday the group had concluded that “there appears to have been a breach” of their agreement with BP.

“The shareholder agreement is clear,” he said. “Notice needs to be made in detail and in writing before either shareholder engages in material negotiations with a third party or makes any financial commitments, and that has not been done.”

Some analysts say the dispute raises questions about the future of the seven-year-old joint venture. TNK-BP is Russia’s second-largest privately owned oil company, behind Lukoil.

Rosneft is Russia’s largest oil extractor and one of two large state companies expected to win rights to Arctic exploration.

BP has said it adhered to existing agreements and consulted with the partners last week before announcing the Rosneft pact, which calls for the two companies to swap shares and to cooperate in exploring the blocs in the Kara Sea, off Russia’s northern coast. Rosneft will hold a 5 percent stake in BP, and BP will hold a 9.5 percent share in Rosneft.

The BP-Rosneft deal has the support of Russia’s prime minister, Vladimir V. Putin.

Mr. Polovets said the shareholder agreement required BP to submit its investment proposal with Rosneft first to TNK-BP management, which had the right of first refusal. Only then, he said, could BP initiate negotiations.

A spokesman for BP in London, Robert Wine, described the reaction by TNK-BP’s Russian partners to the Rosneft deal as businesslike and said BP would “keep them informed” as final details of the deal were settled.

BP’s relations with TNK-BP have a tempestuous history, and a dispute with the private investors greatly curtailed the British company’s operations in Russia two years ago.

The new rift underscores the risks for BP as it invests more heavily in Russia, as it seeks new opportunities after last year’s Gulf of Mexico oil spill. BP faces years of litigation in the United States over the spill. But Russia poses its own hazards.

In 2006, for example, Russian officials compelled Shell to sell control of its Sakhalin II oil and gas development to the state company Gazprom. At the same time, BP also confronted problems with regulators and threats to its licenses.

But BP’s largest challenge came not from the state per se, but rather from the 2008 dispute with the private partners in TNK-BP. They are members of the wealthy coterie of businessmen known as the oligarchs and have close ties to certain factions in government.

They forced BP to cede some control over the TNK-BP venture. And Robert Dudley, who led TNK-BP at the time, went into hiding outside Russia after the worsening disputes led to the revocation of his work visa. Mr. Dudley is now BP’s chief executive.

Discussion of BP’s prospects here now hinge on the interrelationship between the two main types of risk in Russia — effective nationalization by the state or conflict with private oligarchic partners.

Aleksei V. Kokin, oil and gas analyst at Uralsib bank in Moscow, said the agreement with Rosneft should ensure the Russian state was on BP’s side in any future dispute with the partners.

“In theory, it should help” reduce risk in Russia, Mr. Kokin said. But BP’s elaborate maneuvering could collapse at some point, he said. “It’s not over yet. It may get way too complicated.”

BP has about a third of its global business and 40 percent of its shareholders in the United States. But Russia had been an important market for BP even before the Rosneft deal.

The British oil giant gets about 25 percent of its output and reserves from TNK-BP, based in Moscow. TNK-BP’s profit rose 25 percent, to $1.45 billion, in the third quarter from the previous three months, benefiting from a weaker ruble.

The TNK venture, though, has no prospects in the offshore areas north of Siberia, which BP says could hold as much oil as the British sector of the North Sea. The fact that BP reached the deal with Rosneft directly and not through TNK-BP raises questions about BP’s plans for the joint venture, some investors said.

Kaha Kiknavelidze, managing partner at the investment firm Rioni Capital in London, which owns a stake in BP and Rosneft, said TNK-BP might need to find its own partnership or merge with another oil company.

Andrew E. Kramer reported from Moscow, and Julia Werdigier from London.

New York Times Article Online

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