BP to empty its barrel of Russian joint venture

The oil giant's Russian joint venture has finally come of the rails...

by Michael Northcott
Last Updated: 19 Aug 2013

BP has certainly had a rollercoaster experience over the last few years, but now its notoriously fraught partnership in the TNK-BP Russian joint venture looks to have disintegrated altogether. The firm announced that it has ‘received unsolicited indications of interest’ in its stake in the Russian oil joint venture, and that it intends to ‘pursue’ a potential sale. 

But given the tensions between BP and the other 50% shareholder – a group of Russian billionaires called Alfa-Access-Renova (AAR) - it looks more like BP has been booted out. The hostility between the two parties was made clear to the international business community when Bob Dudley, current CEO of BP, was de-throned as chief of the Russian venture back in 2008.

But in the last week tensions have come to a head: AAR’s Mikhail Fridman resigned as CEO of the TNK-BP and speculators jumped on his resignation as a sign that the partnership was beginning to suffer a serious breakdown. Perhaps it was down to BP’s habit of just pumping a load of mud into bad situations…

It is difficult to know what this will mean for BP’s future. Shareholders in BP obviously think getting out of the partnership is a slick decision: shares in the company rose 4% in London this morning. But TNK-BP has paid massive dividends over the last decade (around $19bn) and accounts for 29% of BP’s production and more than a quarter of its oil reserves. The shareholders’ positive reaction possibly reflects just how difficult a business relationship the venture was, and the lack of certainty may have been seen as holding the company back.

It is thought that the sale could net BP $30bn, but it would end the company’s nine-year adventure in Russia, so no doubt it will be looking for something to plug the hole. Last year, AAR launched a legal challenge last year to stop BP forming another joint venture with Russian oil giant, Rosneft. With BP now ducking out of the existing partnership, the TNK-BP stake would make a ripe acquisition for Rosneft, blotting BP out of Russia altogether…

You’d probably have to be in the boardroom to know what is the next target on BP’s radar. But its Gulf of Mexico fields are still packed full of oil, and with the prospector community squawking about South America, perhaps the oil-rich region will be BP’s saviour…

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