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

Spills, spin, morals & a trusty correspondent!

A corporate scandal, disaster or an implosion always creates an appetite for literature on the subject. Amid a cacophony of books – some hurried, some scrambled and some downright rubbish – you often have to wait for a book that is the real deal. The Oilholic is delighted to say that if BP, its culture, the mother of all oil spills and its underlying causes are of interest to you, then Reuters correspondent Tom Bergin’s book – Spills and Spin: The Inside Story of BP – is the real deal and was well worth the wait.

Perhaps for many potential readers of this book, the author - a former oil broker turned newswire correspondent - would be a familiar name; Bergin’s wire dispatches have been flickering on our Reuters monitors for some time. However, if you were a shade worried that so networked a man as the author would give some within BP an easy ride, then that worry gets smashed to pieces a few pages into the book.

The Oilholic can safely say that in the energy business there are no moral absolutes. On reading Bergin’s account, the “pre-spill” BP it seems lost sight of morals full-stop. In a book of just under 300 pages, split by ten chapters banking on his experience as an oil correspondent, the author notes that what transpired when Deepwater Horizon went up in flames was not some isolated incident. Via a fast paced and gripping narration, he provides an account as well as his conjecture about all things BP and where did it all start to go wrong.

In order to contextualise what led up to the Gulf of Mexico spill and its aftermath, Bergin first examines BP’s history and its trials in some detail, then the transformative impact – for better or for worse – of John Browne, his successor Tony Hayward and corporate decisions throughout their time which transformed a once troubled part player into a big league major.

For over a decade and more, accompanying this transformation was what the author describes as the most sophisticated PR machine of all times which failed miserably when the company faced its biggest modern day crisis thereby making the CEO at the time of the spill – Tony Hayward – the most hated or the most farcical man in America; some say both.

Browne’s ego, his protégés, advertising group WPP-devised “Beyond Petroleum” campaign, safety bungle after safety bungle from Texas to Alaska and boardroom politics are all there warts and all. It would be unfair to pick a component of the book and single it out as your favourite, for the whole book is. However, if one may take the liberty of doing so then Chapter 3 - "There's no such thing as Santa Claus" is the best passage of the book. Maybe the Oilholic is biased in favour of these few pages, for as a CNBC researcher working in the wee hours of the morning I had a firsthand feel of the "PR drive" Bergin refers to in that passage.

Lastly, if you thought a British, excuse me – an Irish writer (as he confesses to announcing himself when Stateside in the days of perceived anti-British sentiment) – may give former CEO Tony Hayward an easy ride then you are being unkind. In the spirit of journalistic integrity, Bergin gives Hayward – a man whom he often had unique access to – what we scribes describe as the “full treatment.”

When I met the author a few days prior to book’s release, he told me his work was not a damnation of a company based on a solitary incident, no matter how horrendous the Gulf spill was. Au contraire, Bergin notes the story of that spill itself did not begin on the night of April 20, 2010 but 20 years ago when a determined John Browne set out to create the largest corporation in the world followed by his successor Hayward’s own determination to succeed and then outdo his mentor.

Having read the book cover to cover and seen the author deliver on his promise, the Oilholic’s overriding thoughts are that Bergin’s Spills and Spin could in the fullness of time be as definitive a book on BP in wake of Macondo as Bethany McLean and Peter Elkind’s Smartest Guys in the Room was in wake of the Enron collapse.

This blogger is happy to recommend the book to fellow oilholics, students of the energy business, those interested in corporate history as well as the horrendous spill itself. Last but not the least, some from the PR industry might wish to read it as well; albeit as a lesson on what to omit from the PR playbook!

© Gaurav Sharma 2011. Photo: Front Cover – Spills and Spin © Random House Group

OPEC Leaves Production Levels Unchanged!

As widely expected, OPEC announced on Thursday that its members have agreed to keep its official oil production target at 24.84 million barrels a day. OPEC president Wilson Pastor-Morris said that the policy in place since December 2008, when it announced a record supply cut of 4.2 million barrels per day, is here to stay.

The cartel will next meet on December 11 in Quito, Ecuador to discuss the issue again. Despite being by pressed by journalists, OPEC Secretary General Abdalla Salem El-Badri insisted that individual members' quotas need not be published. “We know how each country behaves, the market should be happy with total quotas,” he said.

He added, the ever present issue of compliance with quotas, was an important one. By OPEC's own assement compliance was at 61% but a Reuters report puts the figure at 57%. In an interesting development - perhaps the only surprise of the day - OPEC announced that Iran will take over the rotating presidency of OPEC in 2011 for the first time in 36 years. Iranian petroleum minister Masoud Mir-Kazemi assumes the presidency from January 2011; watch this space!

© Gaurav Sharma 2010. Photo: © Gaurav Sharma, OPEC 157th Meeting, Vienna, Oct 14, 2010