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A retreat from Moscow that may not ease the problems
Evening Standard 4 Sep 2008
When crude was hitting its record highs of more than $147 a barrel in early July, BP's shares were in sharp decline, a fall that has been extended in recent weeks to wipe around £30 billion off the value of Britain's largest company.
That seemingly contradictory fall only finds its context in the seriousness of the crisis that had overtaken BP in the shape of the uncertain future of TNK-BP, its ground-breaking Russian joint venture.
TNK-BP is perhaps the greatest legacy of deal-doing former BP chief executive Lord Browne.
The 50-50 Russian joint venture is so important to BP that half of TNK-BP's production accounts for one quarter of the whole of BP's output of around 3.5 million barrels of oil a day. That half stake in TNK-BP more importantly accounts for one fifth of the reserves of a supermajor which has found it increasingly difficult to book new finds.
Forget the disasters of the fatal Texas City refinery explosion or the oil spills in Alaska, seen as highlighting the don't-care attitudes of BP's high command, or indeed Browne's ignominious departure over accusations of perjury. Russia, more than anything, has weighed heavily on BP investor sentiment.
According to analysts from Citigroup, BP shares have been rated at a 50p discount to Shell and have underperformed the stock of their Anglo-Dutch arch-rival by 12% this year as a direct result of the TNK-BP uncertainty. As such, says Citigroup, investors can expect a surge of as much as 20% in BP's shares as a result of today's deal.
That is what BP is hoping. However, the amount of bad blood between BP chief executive Tony Hayward and chairman Peter Sutherland and their Russian co-investors cannot be underestimated.
So much so there must be doubts over whether a suitably “independent” chief executive can be found to run TNK-BP post-Bob Dudley or, if a candidate is secured, how well he or she can manage the erstwhile warring factions.
As for Hayward and Sutherland, such an unedifying showdown with key stakeholders (however obstreperous) and the loss of Dudley, their man in Moscow, is hardly the greatest of victories.
