The Oil and the Glory
For BP, hope dies last in Russia
BP’s new tie-up with state-owned Russian oil company Rosneft tracks back to a tension-filled 2008 power struggle in which Rosneft Chairman Igor Sechin (pictured above with Vladimir Putin) engineered the scuttling of a similar arrangement with rival Russian gas giant Gazprom, according to new WikiLeaks cables. The backdrop to the cables is a long-standing management ...
BP’s new tie-up with state-owned Russian oil company Rosneft tracks back to a tension-filled 2008 power struggle in which Rosneft Chairman Igor Sechin (pictured above with Vladimir Putin) engineered the scuttling of a similar arrangement with rival Russian gas giant Gazprom, according to new WikiLeaks cables.
The backdrop to the cables is a long-standing management spat between BP and four Russian oligarch partners in a company called TNK-BP. Essentially, BP sought to build up TNK-BP as a largely or solely Russia oil company, while the Russian partners wished to branch out abroad including to countries to which BP objected such as Cuba, Burma, and Sudan, according to a cable filed June 20, 2008, by the U.S. Embassy in Moscow. All of this was accompanied by the usual Russian orchestra of government inspectors of all sorts, the cancellation of visas, vague personal threats and bad press.
How were the Russian oligarchs able to carry all of this off given that none of them was a government figure? The suggestion in the cables is with the connivance of Sechin, the third most-powerful man in Russia, who seriously objected to BP’s dalliances with Gazprom, another power center in the country.
As described in the June 20 cable, the deal involved shared ownership of specific Gazprom and BP fields, and TNK-BP itself. Regarding the latter, Gazprom would buy out the 50 percent owned by the oligarchs. Gazprom would technically be majority owner since it would receive one additional share from BP, but BP would be operator. But, according to Robert Foresman, deputy chairman of Renaissance Capital, a local investment bank that advised on the deal, Gazprom chairman Alexei Miller waited too long to put the plan in motion, allowing both the Russian oligarchs and Sechin to mount a rear-guard action and eventually to scuttle the deal. Foresman provided those views to the embassy in a meeting with Mary Warlick, at the time senior director for Russia on the National Security Council.
What did Sechin want? His own tie-up with BP, to which BP was not blind. On BP’s behalf, Foresman had investigated that prospect, and decided it would not be "as mutually profitable as the Gazprom tie-in, nor as significant globally." Yet things were highly uncertain, so a Rosneft deal "was looking increasingly attractive to BP under the current circumstances," Foresman told Warlick.
Among the "current circumstances" was a rift within BP itself. On July 21, 2008, British Ambassador Anthony Brenton told the embassy that he had heard of an intra-BP dispute between Dudley and then-BP CEO Tony Hayward, according to a July 24 cable. Hayward had succeeded legendary BP CEO John Browne at the helm only the previous year. A visitor to the Embassy the previous week, former Deputy Energy Minister Vladimir Milov, told U.S. European energy envoy Steven Mann that an outright "power struggle [was] going on" between Hayward and Dudley. "Milov said Dudley had also been considered as a replacement for former CEO Lord Brown, and that Hayward was being blamed by some in the company for the crisis for having tried to de-emphasize the importance of BP’s Russian operations. "
That moment was the height of the Russian spat. On July 24, Shawn McCormick, a vice president at TNK-BP, told the embassy that Dudley left Moscow that evening after he learned through Russian intelligence sources that the Russians would reject his pending visa request the next day, according to a July 25 cable. As it was, Dudley was being personally harassed with a $900 million personal claim filed against him by the Russian oligarchs, and a discrimination suit by a Russian TNK-BP employee. Dudley decided to lay low — the cables do not say what specific apprehensions he felt, though the indications were that they were fear for his personal safety. Whatever the case, "McCormick showed us an e-mail from Dudley informing McCormick that he was not in the UK (as reported by the press) and not in the U.S. McCormick said Dudley is going to continue to move around ‘as a precaution,’" the cable said.
Now, Hayward assumed control of negotiations behind the scenes with Russian oligarch Mikhail Fridman, and reached agreement in the beginning of September, according to a Sept. 5 cable. The peace accord significantly reduced BP’s day-to-day control over TNK-BP, and also cemented Dudley’s departure from the joint venture.
In a discussion with the embassy, McCormick expressed "general frustration" with the agreement, but said it probably couldn’t be helped. BP was in too much trouble around the world. "BP’s stock was down 30 percent in recent months and there were credible reports of potential takeover attempts by Chevron and others. In addition, he said BP had gotten wind that Standard and Poor’s was considering lowering BP’s credit rating. This had caused BP Chairman Peter Sutherland, who had been opposed to the deal, to shift 180 degrees."
Yesterday, TNK-BP managed to get a British court to issue an injunction on the BP-Rosneft tie-up. It seems clear that the reason is Russian-style negotiating — the oligarchs want to be bought out at a high price. So far, Rosneft says such a buyout isn’t in the cards.
Parallels with events two years later and today are too glaring to cite. But one is reminded of the paradox of oilmen, some of the world’s most-hardened yet optimistic individuals.