Bloomberg News

BP Russian JV Must Change Owner Structure, Partner Says

May 30, 2012

BP Plc (BP/)’s billionaire partners in Russia’s third-biggest oil producer are ready to dissolve the equal ownership structure of TNK-BP as tensions mount between the shareholders.

“One thing that’s clear is that the 50-50 arrangement has run its course and it’s time to realign the ownership structure,” Stan Polovets, the Chief Executive Officer of AAR, which represents the billionaires, said in a phone interview broadcast on Russian state television channel RT. AAR is open to buying out BP from venture or could swap its shares for a stake in the London-based company, he said.

Instability at TNK-BP threatens a venture that provides about 25 percent of BP’s output and contributed $3.7 billion to the U.K. oil producer’s cash flow last year. Polovets’s comments come after Mikhail Fridman, one of the Russian investors, quit as CEO this week. TNK-BP’s board hasn’t met this year because shareholders can’t agree on an independent director.

“Perhaps the Russian oligarchs want to get a seat on the board of BP and buy a place in the global elite,” Alexei Kokin, an oil analyst at Uralsib Capital, said by phone. “Any major change in the shareholder structure doesn’t sound doable unless there is a high level agreement” involving Russian President Vladimir Putin and U.K. Prime Minister David Cameron, he said.

The AAR partners want to remain investors in the oil industry, either becoming controlling owners in TNK-BP or “significant shareholders” in BP itself, Polovets said.

Bid Rejected

BP sought to buy out AAR last year in a $32 billion deal with state-run OAO Rosneft to overcome the billionaires’ challenge to their planned share swap and Arctic exploration deal. AAR rejected the bid, and the BP-Rosneft alliance collapsed. TNK-BP’s management provided a report on seeking damages from BP in relation to the alliance to the board of directors in December. The board hasn’t met since then.

BP will discuss any proposals from AAR directly with them, Toby Odone, a spokesman for BP in London, said in an e-mail.

Fitch Ratings said yesterday TNK-BP faces a crisis as management paralysis prevents strategic decision making.

TNK-BP Holding (TNBP), the venture’s traded unit, fell 2.6 percent to close at 81.80 rubles yesterday in Moscow, the biggest drop in a week, cutting its market value to about $37 billion. BP fell 2.1 percent in London.

AAR’s supervisory board consists of Fridman, Viktor Vekselberg and German Khan, who are management board members at the oil venture,; and Len Blavatnik, the founder of Access Industries.

To contact the reporters on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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