BP to call time on 9 years of Russian pain & gain?

After market murmurs came the announcement this morning that BP is looking to sell its stake in Russian joint venture TNK-BP; a source of nine years of corporate pain and gain. As the oil major refocuses its priorities elsewhere, finally the pain aspect has made BP call time on the venture as it moves on.

A sale is by no means imminent but a company statement says, it has “received unsolicited indications of interest regarding the potential acquisition of its shareholding in TNK-BP.”

BP has since informed its Russian partners Alfa Access Renova (AAR), a group of Russian billionaire oligarchs fronted by Mikhail Fridman that it intends to pursue the sale in keeping with “its commitment to maximising shareholder value.”

Neither the announcement itself nor that it came over Q2 2012 are a surprise. BP has unquestionably reaped dividends from the partnership which went on to become Russia’s third largest oil producer collating the assets of Fridman and his crew and BP Russia. However, it has also been the source of management debacles, fiascos and politically motivated tiffs as the partners struggled to get along.

Two significant events colour public perception about the venture. When Bob Dudley (current Chief executive of BP) was Chief executive of TNK-BP from 2003-2008, the Russian venture’s output rose 33% to 1.6 million barrels per day. However for all of this, acrimony ensued between BP and AAR which triggered some good old fashioned Russian political interference. In 2008, BP’s technical staff were barred from entering Russia, offices were raided and boardroom arguments with political connotations became the norm.

Then Dudley’s visa to stay in the country was not renewed prompting him to leave in a huff claiming "sustained harassment" from Russian authorities. Fast forward to 2011 and you get the second incident when Fridman and the oligarchs all but scuppered BP’s chances of joining hands with state-owned Rosneft. The Russian state behemoth subsequently lost patience and went along a different route with ExxonMobil leaving stumped faces at BP and perhaps a whole lot of soul searching.

In wake of Macondo, as Dudley and BP refocus on repairing the company’s image in the US and ventures take-off elsewhere from Canada to the Caribbean – it is indeed time to for the partners to apply for a divorce. In truth, BP never really came back from Russia with love and the oligarchs say they have "lost faith in BP as a partner". Fridman has stepped down as TNK-BP chairman and two others Victor Vekselberg and Leonard Blavatnik also seem to have had enough according to a contact in Moscow.

The Oilholic’s Russian friends reliably inform him that holy matrimony in the country can be annulled in a matter of hours. But whether this corporate divorce will be not be messy via a swift stake sale and no political interference remains to be seen. Sadly, it is also a telling indictment of the way foreign direct investment goes in Russia which is seeing a decline in production and badly needs fresh investment and ideas.

Both BP and Shell, courtesy its frustrations with Sakhalin project back in 2006, cannot attest to Russia being a corporate experience they’ll treasure. The market certainly thinks BP’s announcement is for the better with the company’s shares trading up 2.7% (having reached 4% at one point) when the Oilholic last checked.

From BP to the North Sea, where EnQuest – the largest independent oil producer in the UK sector – will farm out a 35% interest in its Alma and Galia oil field developments to the Kuwait Foreign Petroleum Exploration Company (KUFPEC) subject to regulatory approval. According to sources at law firm Clyde & Co., who are acting as advisers to KUFPEC, the Kuwaitis are to invest a total of approximately US$500 million in cash comprising of up to US$182 million in future contributions for past costs and a development carry for EnQuest, and of KUFPEC's direct share of the development costs.

Away from deals and on to pricing, Brent dropped under US$100 for the first time since October while WTI was also at its lowest since October on the back of less than flattering economic data from the US, India and China along with ongoing bearish sentiments courtesy the Eurozone crisis. In this crudely volatile world, today’s trading makes the thoughts expressed at 2012 Reuters Global Energy & Environment Summit barely two weeks ago seem a shade exaggerated.

At the event, IEA chief economist Fatih Birol said he was worried about high oil prices posing a serious risk putting at stake a potential economic recovery in Europe, US, Japan and China. Some were discussing that oil prices had found a floor in the US$90 to US$95 range. Yet, here we are two weeks later, sliding down with the bears! That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: TNK-BP Saratov Refinery, Russia © TNK-BP