The Oil and the Glory
Will Darth Vader be BP’s newest board member?
Why is BP getting grief in the United States and Great Britain over its $7.8 billion share swap with Rosneft? Because 1) Since Winston Churchill, BP has been a strong, sometimes pivotal influence on British foreign policy; 2) For much of 1990s, BP was something of a lapdog for Russian oil policy – that was ...
Why is BP getting grief in the United States and Great Britain over its $7.8 billion share swap with Rosneft? Because 1) Since Winston Churchill, BP has been a strong, sometimes pivotal influence on British foreign policy; 2) For much of 1990s, BP was something of a lapdog for Russian oil policy – that was before it switched horses in order to gain U.S. approval of its 2000 purchase of Arco; and 3) It could revert.
That said, one of the most surprising aspects of the deal is not that BP could again argue Russia’s debating points and say they are Western, but the inattention paid to another fairly material outcome of the deal, which is the likelihood that Deputy Prime Minister Igor Sechin will join BP’s board.
BP CEO Bob Dudley said the two sides never discussed board representation in their deal discussions, but Rosneft CEO Eduard Khudaintatov says they will, according to Interfax. And there is almost no possibility that state-owned Rosneft has bought 5 percent of a western oil major without the intention of backing up its investment with a seat on the board; there is about the same probability that the person who sits in that seat will be Sechin, Rosneft’s chairman and Prime Minister Vladimir Putin’s hand-picked chief energy hand.
If this happens, what will it mean to have Sechin on one’s board?
For one thing, it means the Kremlin is on your board, according to an excellent Sechin profile in June by the Financial Times’ Charles Clover, David Gardner and Catherine Belton. They call Sechin "the third man," because he is the third most-powerful individual in Russia, just under Putin and President Dmitry Medvedev. A 2009 profile of him by Forbes’ Heidi Brown started out this way: "He’s been depicted as Darth Vader in the Russian press and described as "’the scariest person on Earth.’"
But the FT’s Clover and gang argue that Sechin may have changed. As the global financial crisis again demonstrated the fragility of Russia’s economy, Sechin is being a lot friendlier and accommodating, according to these FT writers. That is the Sechin whom BP executives describe when they talk about this deal. As the FT wrote:
For men such as Mr. Sechin, who came to power with Mr. Putin and — driven by an obsession with security and jealous of national status — oversaw Russia’s resurgence from the prostration of the 1990s, the situation has changed. The battle now is the rebranding of Russia, as both an assertive international player and a reliable partner for the west.
Yet, on the side of caution, we’ve seen this movie before. Russia became much more prickly as oil prices rose from 2006 to 2008, and often Sechin was the face of that prickliness. Sechin’s signature action was overseeing the 2006 state seizure and dismantlement of Yukos, which at the time was regarded as perhaps the top oil company in Russia, and providing its best oilfields to Rosneft, where he then became chairman. Those choice morsels are what made Rosneft attractive to BP (which like the British Museum does not pay much attention to the provenance of its riches). From a company worth perhaps $8 billion, Rosneft became an $80 billion behemoth after the Yukos affair.
In terms of turning over a new leaf, just in October, Sechin accompanied Medvedev to Ashgabad, and proceeded to drive a final stake into the heart of the Turkmen-Russia relationship with his thuggish manner of speaking, as we discussed last week.
Sechin is said to recognize that he has to be nicer. But when he sits on BP’s board, he will be looking out for Russia’s interests. The question is whether they will coincide with BP’s.