I was Right All Along: BP ¼, Russia ¾

In my March 4 posting, I wrote that BP was about to be rolled by Russia again. On Friday, the debacle took place.

BP’s share swap deal with Russia’s national oil company Rosneft was supposed to give it a half interest in the development of rich Arctic offshore reserves. BP’s billionaire partners in its ongoing TNK-BP venture objected. BP had signed an exclusive agreement with them, and an arbitration court agreed. To go along, the billionaire partners demanded half of BP’s half. BP vetoed that offer at a TNK-BP board meeting in early March. BP had expected Putin to take care of the billionaires’ objections. He did not. Putting Khodorkovsky in jail was one thing, but the TNK billionaires are his friends.

BP now understands that what they were offered in early March is the best deal they will get.

My March 4 prediction was that BP would end up with a quarter of the deal (instead of a half) and Russia (Putin and the billionaires) would get the three quarters they wanted.

Low and behold, BP announced on Friday, May 6, that it would hand the deal over to TNK-BP (thereby reducing its share to ¼) with the hope that its Russian partner, Rossneft, would agree. Rossneft greeted BP’s offering with grumbling. Maybe BP will get ¼, but they will have to make further concessions to get even that.

This outcome will not endear Robert Dudley to his shareholders, who accuse him rightly of misreading Russian politics. It is also another cautionary tale about doing business in Russia.