BP’s latest project: Trying to keep the Russians happy

Luck has not been BP’s dominant experience this year. But the company is trying to align the stars as it can by shoring up relations where it needs to, while scaling back where it has to. Case in point: The company has sold oilfields in Venezuela and Vietnam to its volatile Russian joint venture, TNK-BP. ...

NATALIA KOLESNIKOVA/AFP/Getty Images
NATALIA KOLESNIKOVA/AFP/Getty Images
NATALIA KOLESNIKOVA/AFP/Getty Images

Luck has not been BP's dominant experience this year. But the company is trying to align the stars as it can by shoring up relations where it needs to, while scaling back where it has to. Case in point: The company has sold oilfields in Venezuela and Vietnam to its volatile Russian joint venture, TNK-BP. That raises $1.8 billion for BP, and throws wood on the fire of its newly warm relations with its sometimes-restive Russian associates.

The four oligarchs who are BP's partners in TNK-BP have had two main complaints over the years. One is BP's reluctance to broaden TNK-BP's reach outside of Russia; the purchases in Venezuela and Vietnam, plus plans to try to buy BP gas assets in Algeria, address that. The other gripe has been cold cash: The Russians want more dividends for their 50 percent stake in the company. BP has addressed that one too, last week announcing a record $4 billion cash dividend to shareholders.

New CEO Bob Dudley is on a similar charm offensive with BP shareholders. A couple of weeks ago, he announced that he will try to restore BP's usual Big Oil-leading dividend next year. The dividend payment, which had been 9 percent, was frozen in June amid the Gulf of Mexico oil spill crisis.

Luck has not been BP’s dominant experience this year. But the company is trying to align the stars as it can by shoring up relations where it needs to, while scaling back where it has to. Case in point: The company has sold oilfields in Venezuela and Vietnam to its volatile Russian joint venture, TNK-BP. That raises $1.8 billion for BP, and throws wood on the fire of its newly warm relations with its sometimes-restive Russian associates.

The four oligarchs who are BP’s partners in TNK-BP have had two main complaints over the years. One is BP’s reluctance to broaden TNK-BP’s reach outside of Russia; the purchases in Venezuela and Vietnam, plus plans to try to buy BP gas assets in Algeria, address that. The other gripe has been cold cash: The Russians want more dividends for their 50 percent stake in the company. BP has addressed that one too, last week announcing a record $4 billion cash dividend to shareholders.

New CEO Bob Dudley is on a similar charm offensive with BP shareholders. A couple of weeks ago, he announced that he will try to restore BP’s usual Big Oil-leading dividend next year. The dividend payment, which had been 9 percent, was frozen in June amid the Gulf of Mexico oil spill crisis.

Back to Russia: One of BP’s problems there has been not just its previously fractious relations with its Russian partners, but the state’s own ambivalence toward the Western companies doing business in the country. One victim of the latter phenomenon is TNK-BP’s $1 billion investment in Kovytka, a natural gas field. TNK-BP saw the field as a natural supplier for China, but Moscow forbade such exports. It has done similarly with Exxon, which had sought to export its gas from Sakhalin-I to China, but is under pressure from Gazprom to sell it at low, local rates – and, it seemed, preferably sell the whole field to Gazprom. That deal has been off the table since Gazprom’s cash position has shrunk along with the global financial crisis. Today, Reuters reports, a Russian court declared the Kovytka operation bankrupt, which TNK-BP had sought as a step in attempting to recover its investment in the field.

These are not gigantic assets for companies of this size — the total volume of oil involved is about 270 million barrels, with 40,000 barrels of production a day. But TNK-TP Chairman Mikhail Fridman (above, in 2008), the most public instigator of Russian trouble with BP, crowed about the purchase. “The acquisition in Venezuela and Vietnam mark a milestone in TNK-BP’s strategic expansion in the global energy market,” he told the New York Times’ Andrew Kramer. Fridman points out that the properties are in countries friendly to Russia, so government relations ought to be a dividend.

<p> Steve LeVine is a contributing editor at Foreign Policy, a Schwartz Fellow at the New America Foundation, and author of The Oil and the Glory. </p>

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