The deal will see 20% of TNK-BP sold to outside investors through a stockmarket flotation
BP has agreed a peace deal with its Russian partners over the future of their joint venture, TNK-BP, under which embattled chief executive Robert Dudley will quit.
The oil giant announced this morning that Dudley will leave TNK-BP before the end of the year, as part of an agreement hammered out with the four Russian billionaires who also own the business. His departure appears to be the price of ending one of the most vicious internal feuds in recent corporate history.
Today’s deal appears to have been closely coordinated with the Kremlin. It follows an unprecedented campaign by state agencies against TNK-BP, which prompted Dudley to flee Russia in July, citing unprecedented harassment.
Under the memorandum of understanding signed today, TNK-BP’s board structure will be shaken up but the existing 50-50 parity between BP and its Russian partners will be maintained. Several new independent directors will be appointed as part of a plan to curtail the powers of the new chief executive. And 20% of TNK-BP will be sold to outside investors sometime in the future through a stockmarket flotation, as long as the Russian government gives its approval.
The four oligarchs had repeatedly demanded Dudley’s removal, claiming he ran TNK-BP in BP’s interests. He is currently working from an undisclosed location in central Europe after fleeing Russia in July after his visa renewal was refused, and was fined 500 roubles (£11) in August for breaking the country’s labour laws as the dispute intensified. Most of the firm’s international staff – including 148 secondees from BP to TNK-BP – have also left.
Dudley’s replacement will be nominated by BP, but will have to be approved by the whole TNK-BP board. The company said it plans to find a Russian-speaking candidate with extensive Russian business experience. It is not clear whether this in fact means Viktor Vekselberg – the billionaire oligarch and TNK-BP investor – whom AAR proposed as a new CEO earlier this year.
In a co-ordinated series of statements, senior Kremlin figures welcomed the peace deal. Igor Sechin, Russia’s powerful deputy prime minister, said he was “pleased” negotiations between AAR and BP had been successful.
“This is a positive signal for the Russian market. We support the development of TNK-BP and believe that this company has excellent long-term prospects,’ Sechin said.
Another influential aide to Russia’s president Dmitry Medvedev, Arkady Dvorkovich, suggested that Russia was open to ‘major projects’ with the “active participation of foreign investors”. The row is widely perceived to have damaged Russia’s reputation as a safe investment destination, a perception compounded by last month’s Russian invasion of Georgia.
“TNK-BP is one of the most ambitious and promising projects of this kind. We therefore are pleased that the shareholders resolved their differences through business negotiations, and we are confident this will serve as an important message for foreign companies investing in the Russian economy,” Dvorkovich said.
The Russian oligarchs also welcomed the move. Mikhail Fridman, who had previously accused BP of using ‘Goebbles propaganda’ in its battle with AAR, hailed “an exciting new chapter in the development of a great company”.
“AAR is very optimistic about the prospects for TNK-BP, both in Russia and internationally. As long-term investors, we are ambitious to see our joint venture with BP achieve great success,” he said.
In a separate statement to the London stockmarket, BP chairman Peter Sutherland claimed that the deal would benefit both of the warring parties, improve transparency and relieve the recent tensions.
“It will create a stable base from which to grow the joint venture to the benefit of everyone involved, including the Russian state for which strong capital investment and continued technical innovation to boost declining oil output are so important,” Sutherland said.
Tony Hayward, BP chief executive, also paid tribute to Dudley. Calling him “an absolutely outstanding CEO of great courage and strength of character”, Hayward said Dudley had originally planned to step down at the start of 2008 but had stayed on to help the venture.
Most analysts agreed that the damaging battle between AAR and BP was now over. “I don’t think this has been damaging to Russia. It’s a business matter. There are some legitimate reasons for AAR to be unhappy,” Artyom Konchin of the Aton brokerage in Moscow said. He added: “It’s been three or four months. I think the resolution has been pretty impressive. It’s normal for a huge business like that.”
Shares in BP rose by almost 4% this morning after the agreement was announced, up 18.75p at 524.75p.
Last month ratings agency Fitch warned that it might cut TNK-BP’s debt rating if the dispute was not resolved. The row has already claimed chief financial officer James Owen, who resigned suddenly in early August.

(Guardian)