President Dmitry Medvedev speaks with Vice Premier Igor SechinBy Catherine Belton and Stefan Wagstyl

At first glance, Igor Sechin’s abrupt departure as Rosneft chairman appears to bode badly for BP’s last-ditch bid to salvage its alliance with the Russian state controlled company.

But, it could turn out to be a clever tactical move that might yet save the deal. So complex are the political tensions surrounding the deal that the outcome remains impossible to predict. In other words, BP is still in with a chance.

FT Energy Source

Bob Dudley, BP chief executive, and Vladmir Putin, Russian prime minister, when the BP-Rosneft deal was announced in January 2011BP is running out of options. Its plans for a cooperation pact with Russia’s Rosneft was on Friday blocked for a second time by a legal challenge from its Russian partners in its existing Russian joint venture, TNK-BP.

While the international tribunal has still to give a definitive ruling on a key element of the accord – a $16bn share swap – its temporary injunctions could now have a permanent effect on BP’s ability to close the deal. The Russian TNK-BP partners headed by oligarch Mikhail Fridman are winning in their effort to block the ambitious venture.

As beyondbrics has reported, the Stockholm tribunal – which is actually three Brits meeting in London – ruled on Friday that a temporary injunction blocking the share swap should remain in place.

BP failed on Friday to secure legal permission to go ahead with its proposed share deal with Rosneft, the Russian state-controlled oil group, after the Russian partners in its existing Russian venture TNK-BP opposed the plan.

The arbitration court, which had earlier blocked a proposed BP-Rosneft venture for Arctic exploration, on Friday ruled that the second element in the overall agreement – the share swap – could not go ahead on its own for now, under the terms of a temporary unjuction.

BP is rightly coming under growing shareholder pressure to explain what it is doing with its stalled Rosneft deal – or get out of the increasingly controversial $16bn-plus project.

Amid much anonymous grumbling, one big shareholder – Standard Life – went on record on Tuesday questioning BP’s proposals. With the deal deeply entwined in the complexities of the Kremlin and its relations with Russian big business, it is impossible to say how the dice will fall. But the whole affair has done nothing to enhance investor confidence in either BP or Russia.

The British company knew when it announced the deal with Rosneft, with much fanfare and prime minister Vladimir Putin’s public blessing, that it would run into trouble from the Russian billionaire partners in its existing joint venture, TNK-BP.

All four BP-nominated directors failed to turn up for an extraordinary meeting of TNK-BP’s board on Friday, torpedoing a crucial vote on whether the Russian oil venture should participate in the UK oil group’s alliance with Rosneft.

“The board was not able to vote because the BP directors did not show up,” said Stan Polovets, chief executive of AAR, BP’s Russian partners in TNK-BP. “There was no quorum.”

The no-show by BP raises the stake in a stand-off between BP and the Russian billionaire partners in TNK-BP who claim BP’s alliance with Rosneft, the state-controlled oil company, is a breach of their shareholder agreement with BP.

Kiran Stacey

BP’s partnership with Rosneft was remarkable for a number of reasons, not least that it was done against the wishes of BP’s partners in TNK-BP and was the first equity partnership between a private international and a public national oil company. It is also a partnership not limited to developing Russian assets only: the two parties have a 50/50 ownership of Ruhr Oel, a German refining joint venture.

Ian Smale, BP’s group head of strategy and policy, told an audience in London on Monday that the two companies would be looking at further JVs outside Russia, and described the arrangement as an example of how IOCs and NOCs could form closer partnerships in future.

Kiran Stacey

A newsflash from Reuters has reported that a UK court has issued an injunction on the BP-Rosneft deal, which is now on hold.

This won’t come as a surprise to BP. Bob Dudley told reporters on Tuesday morning:

There is a relatively low hurdle in the UK for granting an injunction. That may well happen today.

This came after a case brought by AAR, BP’s partners in TNK-BP, who have been far from happy about the Rosneft deal.

But Dudley will not be overly concerned by such a move. Earlier, he insisted that an injunction would be merely a “time-out” in the discussions.

UPDATE – Rosneft is echoing BP’s confidence. A spokesman has said:

All the risks were expected and the London court decision should not affect the essence of the deal.

Shareholders apparently agree. BP remains about 0.5 per cent up on the day, having moved largely on its results.

Russian oligarch Mikhail Fridman is throwing caution to the wind. He and his Russian partners in TNK-BP questioned the BP-Rosneft deal as soon as it was announced last week.

Now they are seeking an injunction blocking an agreement that has the personal backing of prime minister Vladimir Putin. And as if this wasn’t enough, Fridman is complaining loudly about his exclusion from the privatisation of the Bank of Moscow and riding roughshod over Telenor, his partner in the Vimpelcom telecoms group.

Kiran Stacey

Last night, we reported that Igor Sechin, the Russian energy tsar, Rosneft chairman and deputy prime minister, had moved to damp down a brewing rebellion from BP’s Russian partners in TNK-BP against the Rosneft tie-up.

Well, it didn’t work. This morning it emerged that AAR has filed for an injuction at the High Court in London, claiming, the deal “may have been a breach” of BP’s existing shareholder agreement to pursue projects in Russia and Ukraine exclusively through TNK-BP.

Sechin insisted at Davos,

We consulted with BP and it is their opinion that they acted in line with the law. We don’t see a problem here.

But BP shareholders are obviously a little concerned. On an otherwise positive day for the FTSE100 and oil stocks, BP’s shares have slipped 0.5 per cent.

Energy Source is no longer updated but it remains open as an archive.

Insight into the financial, economic and policy aspects of energy and the environment.

Read our farewell note

About the blog


« AugDecember 2014