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.
Showing posts with label BP-TNK. Show all posts
Showing posts with label BP-TNK. Show all posts
Saturday, May 7, 2011
Saturday, April 9, 2011
BP’s Travails Continue: Is Something Big Going On In Russia? (The NYT and BP Still Do Not Get It?)
The NYT’s “Misreading the Enigma” gets one thing right: BP has lacked “geopolitical acumen” in its Russian dealings. BP’s proposed share swap with Rossneft (the State oil giant) is on permanent hold. The Stockholm arbitration court says BP may have violated its shareholder agreement with its billionaire AAR partners in their private BP-TNK Russian oil venture.
It now turns out (according to confidential NYT sources within BP) that BP had disclosed the potential conflict to the Kremlin but thought that the Kremlin “would resolve any difficulties with the local shareholders” because the BP deal coincided with the Russian national interest. BP failed to understand that in the Russian KGB state, no one (including Putin) really cares about the “national interest.” The confidential BP source went on to state the obvious: “It hasn’t happened yet. It has to happen now.”
It also turns out that the presumed patron of the deal, Putin, was aware of the conflict and remarked at the signing that the AAR partners were “litigious.” Putin now claims he was “completely in the dark.” BP “didn’t say a word about this.”
Here is the proper interpretation of what is going on: When BP struck its deal in January, the Russian treasury was empty. It needed investment in arctic oil, and the world price of oil was low. Russia needed BP. BP, thinking Putting was on their side, assumed that Putin would “pull a Khodorkovsky” on the AAR billionaires. If they want to kick up a fuss against the deal, Putin had a steel cage ready for them in a Moscow courtroom, BP thought.
Putin did not put the squeeze on the AAR billionaires for any of a number of reasons: First, AAR had already bought him off to help them in their plan to get half of BP’s half of the Rossneft deal. (Putin might need a few billion more for his portfolio). Second, Putin can take on a single Oligarch (such as Khodorkovsky), but can’t take on three at once. If this is the reason, Putin is less powerful than we think. Third, Putin fears he faces a real challenge from Medvedev in the 2012 presidential election and needs the AAR billionaires and their media empires on his side.
Whatever the interpretation, things do not look good for BP, which is now looking for a “reasonable commercial solution.” That solution is the one I have been predicting for quite a while: AAR gets one quarter of the Rossneft drilling venture, “Russia” get a half, and BP is reduced from a half to a quarter.
Such is the price of misreading the geopolitical tea leaves.
It now turns out (according to confidential NYT sources within BP) that BP had disclosed the potential conflict to the Kremlin but thought that the Kremlin “would resolve any difficulties with the local shareholders” because the BP deal coincided with the Russian national interest. BP failed to understand that in the Russian KGB state, no one (including Putin) really cares about the “national interest.” The confidential BP source went on to state the obvious: “It hasn’t happened yet. It has to happen now.”
It also turns out that the presumed patron of the deal, Putin, was aware of the conflict and remarked at the signing that the AAR partners were “litigious.” Putin now claims he was “completely in the dark.” BP “didn’t say a word about this.”
Here is the proper interpretation of what is going on: When BP struck its deal in January, the Russian treasury was empty. It needed investment in arctic oil, and the world price of oil was low. Russia needed BP. BP, thinking Putting was on their side, assumed that Putin would “pull a Khodorkovsky” on the AAR billionaires. If they want to kick up a fuss against the deal, Putin had a steel cage ready for them in a Moscow courtroom, BP thought.
Putin did not put the squeeze on the AAR billionaires for any of a number of reasons: First, AAR had already bought him off to help them in their plan to get half of BP’s half of the Rossneft deal. (Putin might need a few billion more for his portfolio). Second, Putin can take on a single Oligarch (such as Khodorkovsky), but can’t take on three at once. If this is the reason, Putin is less powerful than we think. Third, Putin fears he faces a real challenge from Medvedev in the 2012 presidential election and needs the AAR billionaires and their media empires on his side.
Whatever the interpretation, things do not look good for BP, which is now looking for a “reasonable commercial solution.” That solution is the one I have been predicting for quite a while: AAR gets one quarter of the Rossneft drilling venture, “Russia” get a half, and BP is reduced from a half to a quarter.
Such is the price of misreading the geopolitical tea leaves.
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