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From Russia, Not With Love
by Portfolio Staff
Sep 4 2008
Sep 4 2008
B.P. has a settlement that is worrisome.
For foreigners, this is how business now gets done in Russia: There is a long siege of hostilities supported by the Kremlin, followed by a peace that should leave investors uneasy.
Consider the truce that oil giant B.P. has reached with its partner TNK. After an eight-month dispute, the two companies have come an agreement over their Russian joint venture that shakes up its management but leaves B.P. with its 50 percent stake. The chief executive will leave by the end of the year, and more independent directors will be on the board. The two sides may also sell shares in the unit to the public, possibly as much as 20 percent.
The agreement comes after months of demands from the four oligarchs who controlled the Russian half that the joint venture's C.E.O. step down because he was favoring British shareholders.
The chief executive, Bob Dudley, an American, complained of a "sustained harassment." He had been forced to manage the venture from London after his visa was not renewed. Other foreign employees' visas were not renewed, and the chief financial officer quit.
The suspicious decision being made by the government followed similar strong-arm tactics that drove Royal Dutch Shell out of a project on Sakhalin and led to the takeover of the oil giant Yukos.
So now Dudley will step down, to be replaced by a Russian-speaking executive.
Having got what they want this time, does anyone really expect the oligarchs, with the Kremlin's blessing, to stop meddling in the future? Other standoffs may come in picking the next C.E.O. and choosing independent directors for the board.
Yet shares of B.P. are up sharply in London trading today. The Russian venture is crucial to B.P., accounting for nearly a fourth of its oil production.
It is "certainly positive to see a plan for cessation of hostilities, with B.P. preserving its 50 percent stake and an opportunity to release part of the value via an initial public offering,'' Ivor Pether at Royal London Asset Management told Bloomberg News.
"But it's hard to envisage who would qualify as an independent director."
Consider the truce that oil giant B.P. has reached with its partner TNK. After an eight-month dispute, the two companies have come an agreement over their Russian joint venture that shakes up its management but leaves B.P. with its 50 percent stake. The chief executive will leave by the end of the year, and more independent directors will be on the board. The two sides may also sell shares in the unit to the public, possibly as much as 20 percent.
The agreement comes after months of demands from the four oligarchs who controlled the Russian half that the joint venture's C.E.O. step down because he was favoring British shareholders.
The chief executive, Bob Dudley, an American, complained of a "sustained harassment." He had been forced to manage the venture from London after his visa was not renewed. Other foreign employees' visas were not renewed, and the chief financial officer quit.
The suspicious decision being made by the government followed similar strong-arm tactics that drove Royal Dutch Shell out of a project on Sakhalin and led to the takeover of the oil giant Yukos.
So now Dudley will step down, to be replaced by a Russian-speaking executive.
Having got what they want this time, does anyone really expect the oligarchs, with the Kremlin's blessing, to stop meddling in the future? Other standoffs may come in picking the next C.E.O. and choosing independent directors for the board.
Yet shares of B.P. are up sharply in London trading today. The Russian venture is crucial to B.P., accounting for nearly a fourth of its oil production.
It is "certainly positive to see a plan for cessation of hostilities, with B.P. preserving its 50 percent stake and an opportunity to release part of the value via an initial public offering,'' Ivor Pether at Royal London Asset Management told Bloomberg News.
"But it's hard to envisage who would qualify as an independent director."
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