The Oil and the Glory

Is BP destined to blunder?

When it comes to Russia, BP stands out for its untiring use of the end-run as an operative corporate strategy, regardless of how often it is tackled on the way to the end zone. On Monday, BP floated its latest sure-fire attempt to bypass its rapscallion Russian oligarch partners, and win prize Arctic acreage in ...

John Stilwell  AFP/Getty Images
John Stilwell AFP/Getty Images

When it comes to Russia, BP stands out for its untiring use of the end-run as an operative corporate strategy, regardless of how often it is tackled on the way to the end zone. On Monday, BP floated its latest sure-fire attempt to bypass its rapscallion Russian oligarch partners, and win prize Arctic acreage in partnership with state-run Rosneft. By yesterday, though, the company had thought better of the play — CEO Bob Dudley got in front of reporters and said, effectively, "Never mind." Back to the huddle.

Before long, it will be a year since BP stopped the spewing of oil from its Macondo rig in the Gulf of Mexico. The company has been unmoored since, a condition that BP itself hopes to correct with a dashing combination of panache, legal reasoning and negotiating skill. It may do so yet — I hear compellingly from a few smart thinkers who argue in emails and conversation that Prime Minister Vladimir Putin himself ultimately will intervene in order to advance the best interests of Rosneft. But on the way to resurrection, there is much self-inflicted suffering.  

Recall that in January, BP unveiled a bold plan to drill for Arctic oil with Rosneft; as part of the deal, the two companies would become blood brothers, swapping some $8 billion in shares, sufficient to earn mutual board seats, though that part was left for discussion later. Meanwhile though, BP’s existing Russian spouse — the four oligarchs known collectively as AAR — screamed foul, and stopped the agreement in European court decisions. BP was violating a long-standing exclusivity agreement with AAR for Russian ventures — that was the main attempted end-run — and the oligarchs would not be appeased. Since then, BP has tried to commit bigamy peacefully, and to buy out AAR for $32 billion, but miscues on both sides have stood in the way. (Pictured above: happier days, from left Mikhail Fridman, the leader of the oligarch group;  then-British Prime Minister Tony Blair, Putin; and then-BP CEO John Browne.)

This week came the latest BP play. The story was broken by both the Wall Street Journal and the Financial Times, which published anonymously sourced articles on a devilish new BP strategy for untethering itself from the oligarchs — its lawyers somehow determined that if the company sold out any part of its TNK holding, the exclusivity agreement was null and void. Even if "one share of [BP’s] 50 per cent stake" were sold, the FT reported, BP would be released from its misery. I myself do not grasp at this point why that would be the case. But I am told that this was the gist — or threat — of two separate conversations held Monday between AAR and extremely senior BP executives (according to the terms of the interviews, I cannot identify the participants by name; suffice it to say, however, that they hold decision-making positions).

The AAR side regarded the conversations as "lots of positioning," I was told. Then, as I say, the story leaked, and BP’s attempt backfired. BP was exposed as a bluffer — it either was not prepared to test out this theory, or hadn’t gotten Rosneft on board with it. That violated a key rule of the end run — your player really has to run around the end toward the goal line; he cannot hop from foot to foot while standing next to the quarterback. When he does the latter, he looks flat-footed. And his opponents are alerted to the end run. It’s hard to run it again.

During an event yesterday at BP headquarters, Chairman Carl-Henric Svanberg expressed more buoyancy about the affair. "I’m sure some kind of deal could still materialize in one form or another" between BP and Rosneft, he told the WSJ’s Guy Chazan.

Not so much Dudley. He said that might be the case, but that "in the meantime, we’re moving on."

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