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. Last Updated: 07/27/2016

TNK-BP Chief Refuses to Step Down

ReutersTNK-BP chief executive Bob Dudley on Saturday attending a corporate governance conference, where he said the company had arrived at a 'watershed.'
TNK-BP's embattled chief executive, Bob Dudley, on Saturday defiantly dismissed a call by the company's Russian shareholders for him to quit and warned that boardroom infighting could threaten its future.

"The road ahead is risky," Dudley said in a speech at a conference on corporate governance at the Ritz-Carlton hotel, a stone's throw from the Kremlin. "TNK-BP's direction is not irreversible. … It has indeed arrived at a watershed."

"For five years my role has been to balance the interests of the shareholders," Dudley told a throng of reporters after his speech. "I'll try to continue to maintain this balance."

His comments came as Prime Minister Vladimir Putin revealed in an interview with French newspaper Le Monde that in 2003 he had warned BP against a 50-50 partnership, advising instead that one side should have a controlling stake.

Concerns have been steadily mounting over the viability of the British oil major's joint venture through a torrid week of public mudslinging with its Russian partners, billionaires Mikhail Fridman of Alfa, Len Blavatnik of Access Industries and Viktor Vekselberg of Renova. The Russians boycotted a board meeting in Cyprus on Thursday after BP rejected their demand for Dudley's ouster.

BP and the Alfa-Access-Renova, or AAR, shareholders met informally for talks on the island, however, and are set to continue their talks this week, Vladimir Buyanov, a spokesman for BP in Moscow, said Sunday.

BP chief executive Tony Hayward will attend the St. Petersburg International Economic Forum this weekend, Buyanov said. Hayward has held a number of meetings with Russian officials in recent months, including with top officials at Gazprom and Rosneft.

In a statement released late Thursday, the AAR shareholders accused Dudley of "deeply inappropriate" airing of differences in public and acting in the interests of BP alone.

The boycott came three days after an interview by Dudley with Vedomosti, in which he confirmed that there were serious disagreements among shareholders on whether to expand abroad or develop current TNK-BP fields in Russia, as well as on investment strategy and whether to sell "some of the assets."

In the wake of Thursday's failed meeting, an independent director on the TNK-BP board, Jean-Luc Vermeulen, resigned.

"He tried to resolve the dispute between the shareholders, but failed, and decided to resign," a source close to TNK-BP said Saturday.

Dudley said Saturday that he could not comment on Vermeulen's resignation, as he had not spoken to him since.

The shareholders' reaction to the Vedomosti interview was not surprising, Dudley told reporters.

"I don't consider it a strong response," he said. "And it is appropriate for me to talk about it."

The shareholder infighting is just the latest in a string of troubles to hit the Russian-British firm from all sides this year, including raids by the Federal Security Service over spying allegations, and BP specialists first facing visa problems and then being denied access to TNK-BP's offices.

The mounting pressure has prompted speculation that BP could soon cede majority control of TNK-BP to a state energy firm, such as Gazprom.

On the possibility of Gazprom buying a stake in TNK-BP, Dudley said, "As far as I know, none of the shareholders are selling." The dispute would be "resolved soon," he told reporters.

Senior ministers said last week that the government would stay out of the shareholder dispute.

Putin's interview with Le Monde, published Saturday, further fueled the speculation about a change in ownership at the company.

"They now have a problem with their Russian partners. I warned them several years ago that there will be problems," Putin said in the interview, which was attended by news agencies.

Misha Japaridze / AP
TNK-BP's head office. The firm's Russian shareholders want Dudley to resign.
Putin said that, at the signing ceremony for the TNK-BP deal in 2003, he had told BP: "Don't do it. Agree to one of you having a controlling stake."

"A whip master was needed there. … [BP] told me they will manage, and here is the result. They will always have frictions over who is the boss," Putin said, Reuters reported.

Putin's comments appeared to be in stark contrast to those he made in June 2003, however, when as president he blessed the TNK-BP deal at a joint news conference with then-British Prime Minister Tony Blair in London.

"Russia and Britain have a mutual and well thought-out plan for cooperation," Putin said, The Moscow Times reported at the time. "As the English proverb goes, where there's a will, there's a way."

But the pioneering TNK-BP deal now seems an era away, as the tide has turned decisively in favor of strong state control over the strategic oil sector.

A week after Putin and Blair met in London, the onslaught against Mikhail Khodorkovsky's Yukos began, leading to his jailing on tax and fraud charges and the bankrupting of the country's largest private oil company.

Last year, Putin called on the country's top business leaders to focus on expanding abroad and hinted that they should leave the strategic sectors of the economy to state-controlled companies. He has also called for more domestic companies to be led by Russian CEOs and top managers.

Buyanov, the BP spokesman, said Sunday that it was known that Russian officials had harbored reservations about TNK-BP's 50-50 partnership structure for years.

Other press revelations appeared to show the pressure on TNK-BP coming to a head.

The Wall Street Journal on Friday cited sources close to TNK-BP as saying that BP had sought the ouster of the company's executive director, German Khan, a partner in Fridman's Alfa Group, as well as TNK-BP's security and legal chiefs, over the refusal by security personnel to allow BP specialists enter TNK-BP's offices.

Buyanov said he could not confirm or deny the report.

Peter Henshaw, vice president for communications at TNK-BP, confirmed Sunday that a group of BP secondees to TNK-BP with valid work permits and visas had been "denied entry to TNK-BP's offices by the company's security group, which reports to Mr. Khan."

Khan had also been the executive behind TNK-BP applying for fewer work permits for foreign specialists than Dudley had ordered, the Journal said, citing an unnamed immigration official.

Meanwhile, tabloid newspaper Tvoi Den said Friday that Russian intelligence services had exposed a spy among TNK-BP's senior managers.

Dudley called the report "very, very strange" on Saturday.

In another potentially bad piece of news for TNK-BP and its shareholders, the Interior Ministry announced Thursday that it was investigating a criminal case involving a former top executive at founder company TNK. Ministry sources said they suspected Simon Kukes, a former TNK president, of evading nearly $1 billion in taxes from 2001 to 2003, Interfax reported.

Kukes now serves as CEO at Samara-Nafta, a small oil producer 80 percent owned by U.S.-based Hess Corporation. He could not be reached for comment Friday.

TNK-BP spokeswoman Marina Drachyova said Friday that the company would not be affected by the investigation. She said earlier that the company had settled all tax arrears for the period.

Roger Munnings, CEO of KPMG in Russia, said on the sidelines of Saturday's corporate governance conference that a 50-50 joint venture such as TNK-BP's could only work "as long as shareholders' interests were aligned." The AAR shareholders' demand to oust Dudley appeared reminiscent of a typical opening gambit in Russian business, Munnings said, where the first move was very aggressive but the eventual deal was often nearer to a compromise.