BP’s opportunity and cosying up to the tsar of Russia

Posted: October 24, 2012 in Business News
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When Vladimir Putin isn’t shooting tigers, saving Siberian cranes, catching whales or just looking all round tough, he is being nice about BP.

Let’s face it, during the last few years things have been a tad troubled for BP. Cast your mind back to 2003. In that year the company agreed a joint venture called TNK-BP with a group of Russian billionaires. The British company invested $8 billion in the venture, and it all seemed rather promising. The joint venture appointed a BP man, a certain Bob Dudley, as CEO.

But while BP was busy laying the foundations for an environmental disaster in the Gulf of Mexico on a scale to make even its loyal shareholders shudder in disbelief, its relationships in Russia deteriorated. Eventually, things had got so bad that Mr Dudley was forced to leave Russia in something of a hurry, with questions about his visa. And ever since, BP and its partners in TNK-BP could barely look each other in the eyes without making evils at each other.

The bucks still came flooding in, however, and BP has enjoyed no less than $19 billion in dividends from its shareholding in TNK-BP.

So while Barack Obama was being all horrible to the company, and its CEO Tony Hayward, who (in typical British understatement) said: “I want to get my life back”, BP found itself promoted to the role of public enemy number one in the US. In the meantime, Vlad took time off from teaching Nicholas Sarkozy some Judo holds, to say how much he liked BP, and how very upset he was about the way in which Tsar Barack the First of the USA was treating  the company.

By then BP had a new boss, none other than Bob Dudley. His American accent helped to alleviate some of the bad PR Stateside, but how would Bob be able to manage the lucrative relationship with TNK-BP when he had personally suffered such a falling out?

Mr Putin said he wanted BP to work with Russia in developing oil resources in the Arctic. “Err, no to that,” said TNK-BP, “We have the exclusive on all dealings between BP and Russia.”

So that left BP in a difficult spot; its reputation in America was in tatters (and that might be kind to tatters), but its dealings in Russia seemed to remind one ever so slightly of wading in treacle.

Now things have changed. The huge Russia state owned energy company Rosneft– the one that picked up a lot of business from Yukos, the energy giant that went down after its boss Mikhail Khodorkovsky found himself in trouble over taxes/after moving into politics – has bought BP’s stake in TNK-BP. At least it has, subject to the normal legality issues.

BP is getting $12.3 billion plus shares in Rosneft worth 12.84 per cent of the company. Actually BP is getting more cash than that, but it is using some of the money to buy the Rosneft shares, so the $12.3 billion is a net figure. BP will also have two seats on the Rosneft board. Meanwhile, according to this morning’s ‘FT’, Rosneft is also going to buy the rest of TNK-BP.

All of a sudden BP finds it is in a pretty powerful position in Russia. Rosneft’s CEO, Igor Sechin, is a former deputy Prime Minister of Russia, and said to be one of Putin’s favourites.

For BP this is a pretty unique opportunity. Tsar Vladimir likes the company and the potential riches in the Arctic are great indeed.

BP’s rivals may well find they are squeezed out of Russia.

Not sure how the US will react. Many have said the last thing BP wants is too much cash from the deal, because Uncle Sam may then decide that actually BP needs to fork out more money in damages for the 2010 Deepwater Horizon disaster.

There is one thing BP has going for it, and that is superb skills in exploiting oil in those hard to reach places of the Earth.

The Russian deal may prove to be most lucrative for BP – that is for as long as the company has the confidence of Mr Putin.

Here is some advice for Mr Dudley: don’t suddenly decide you like that Russian punk group called Pussy Riot.

©2012 Investment and Business News.

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