UK-based oil giant BP Plc (BP, BP.L, BPAQF.PK) said Thursday that it reached an agreement with Russian consortium Alfa Access-Renova, or AAR, over their joint venture and Russia's third largest oil company TNK-BP, which will result in ousting of its chief executive Bob Dudley for a Russian speaking successor. Under a memorandum of understanding, or MOU, signed Thursday, the parties also agreed to re-structure the TNK-BP board by adding three new independent directors.
BP, in a statement, noted that the overhaul of TNK-BP's governance structure focuses on better alignment of the partners' respective interests and improve the transparency of TNK-BP's equity.
The MOU, which will be finalized in detail over the coming months, also includes an option to sell up to 20% of a TNK-BP unit through an initial public offering, subject to the consent of the Russian authorities, on the international financial markets.
According to BP chief executive Tony Hayward, the agreement is "a sensible means of resolving a situation that could not continue without causing serious damage to what has been an immensely successful joint venture for all concerned."
The parties were engaged in a long-running dispute over strategy and management of the joint venture formed in August 2003, which supplies 25% of BP's oil and gas production. BP's accusation, as per reports, was that the Russian shareholders were using strong-arm tactics to take control of the venture, while AAR claimed Dudley ran the venture as a BP subsidiary.
Earlier, Russia expelled several BP employees on espionage charges, while TNK-BP's chief financial officer and head of downstream operations quit. In March, BP reportedly recalled 148 employees in Russia because of alleged visa problems.
As per the settlement, Dudley will step down before the end of the year. A new independent chief executive, nominated by BP and approved by the TNK-BP board, will be appointed, who will also be a Russian-speaking with extensive Russian business experience. The new chief executive will mainly focus on further improving transparency, financial returns and the market value of the company's shares.
For long, the Russian shareholder consortium has been demanding the expulsion of Dudley, who has been running the company from abroad since leaving Russia in July due to legal problems.
Mentioning Dudley, Hayward said, "Bob originally intended to step down at the beginning of the year but volunteered to stay in place to guide the joint venture through what he realized would be a difficult transitional phase. He will be very hard to replace."
BP pointed out that Dudley's leadership for five years made TNK-BP the most successful oil business in Russia, with record production growth, reserves replacement and total shareholder return. Under him, the company delivered dividends of more than $20 billion and paid over $80 billion in taxes and duties to the Russian Federation.
For the first-half of fiscal 2008, TNK-BP posted a profit of $4.7 billion, more than double from $2.1 billion in the same period in 2007. Revenues for the period were $28.3 billion, significantly higher than prior year's $17 billion. The company also experienced higher oil production in the past four consecutive quarters, to a level of 1.63 million barrels a day.
The partners also agreed to reduce TNK-BP's management committee significantly from the current 14 members and will include the chief executive, the chief operating officer, the chief financial officer and an executive director. TNK-BP's main board also will be adjusted in size, to include four each from BP and AAR, together with the three new independent directors not affiliated to either side. Further, it has been agreed that the company will continue to operate under English law.
BP chairman Peter Sutherland added that the pact will benefit everyone involved, including the Russian state which is in high need of strong capital investment and continued technical innovation to boost declining oil output.
BP closed Wednesday's regular trading session at $54.44, up $0.43, on a volume of 7.5 million shares. In the pre-market activities, shares increased $0.95 or 1.75% to $55.39.
BP.L is currently trading at 520 pence on the LSE, up 14 pence or 2.77%, on a volume of 54 million shares.
For comments and feedback: editorial@rttnews.com