It looked like a masterstroke from BP's chief executive, but the tie-up with Russia's Rosneft has descended into a shambles, leaving Bob Dudley facing questions about his judgement for the first time since he took over in October. The plan was nothing short of re-making the British oil giant in the aftermath of the Deepwater Horizon disaster last spring which unleashed the worst oil spill in history and left the group's reputation – and share price – in tatters.
The company is selling $30bn (£19bn) – of assets to pay for the slick. Mr Dudley used the necessity as an opportunity to pare back non-core assets, thoroughly remodel the group's vast refining and marketing operations – including the sale of two major refineries in the US – and re-focus on the highly technical exploration and production areas that are BP's big selling point.
Where better to start than in Russia, with January's $8bn deal to swap shares and explore Arctic zones with Rosneft, the state-backed oil giant? And that was not all. Barely more than a month later, BP clinched a $7.2bn deal with Reliance Industries, giving it a 30 per cent stake in 23 exploration blocks in India.
Both were significant coups for BP. Like all international majors, it needs access to new deposits to replace declining production elsewhere, and such opportunities are increasingly hard to come by with national oil companies keen to retain their reserves. But by the time of the Reliance deal, the cracks were starting to show in the Russian proposals. And last week the venture sank altogether – leaving Mr Dudley's reputation shaken. "The collapse of the Rosneft deal showed a major error of judgement by Bob Dudley, even if it was with the best of intentions," one senior BP-watcher said.
Arguably, Mr Dudley of all people should have seen it coming. As the chief executive of TNK-BP – the oil giant's 50/50 Russian joint venture with the Alfa-Access-Renova (AAR) consortium – Mr Dudley bore the brunt of a year-long dispute between the two sides in 2008 that ultimately led to him fleeing the country.
But it was the four billionaire oligarchs of AAR – led by Mikhail Fridman – who scuppered the Rosneft tie-up. Claiming that the deal violated the TNK-BP shareholder agreement that all operations in Russia go through the group, AAR filed an injunction in a London court. Last week the tribunal ruled it must remain in force, leaving BP unable to pursue exploration projects with Rosneft unless TNK-BP agrees.
The exploration part may be dead, but BP may yet try to salvage the share-swap element of the deal at a follow-up tribunal meeting on Monday. The company says that the scheme still makes sense. Not only are both parties' shares undervalued, but any relationship with the champion of the oil industry in one of the world's fastest-growing markets is worth having, BP says.
Not everyone is so sure. "If Rosneft is the lead oil company in Russia, and Russia is one of the fastest-growing oil provinces in the world, then an investment would likely see above-market performance," David Hart, at Westhouse Securities, said. "But that is a fund manager's point of view and BP is an exploration company, not an investment fund."
On the basis that BP cannot be prevented from buying stock where it chooses, a share swap-only proposal may well be waved through by the tribunal in a week's time. And it will at least ensure that BP remains independent, which was a real question given the vultures circling when Mr Dudley took over the stricken group last autumn.
But even with half the original plan salvaged from the wreckage, the outcome is bad news for BP. For a start there are fences to mend with AAR. Like a bad marriage, both sides emphasise the need to rebuild their relationship for the sake of the joint venture. But relations have sunk to the level of farce in recent weeks as attempts at a compromise merely showed the absence of any common ground. TNK-BP's proposal that it participate in the Rosneft deal was rejected outright by BP. BP's suggestion that TNK-BP approach Rosneft itself about Arctic exploration did not even reach a vote. Worse still was the mood music. The Russian side was left smarting when BP failed to turn up to one of the board meetings, leaving the four AAR oligarchs, and three independent directors – including the former German Chancellor Gerhard Schröder – twiddling their thumbs. BP says the meeting was postponed well in advance.
As to the future, some suggest the debacle may lead to a split. "There are serious questions about where BP goes next with TNK-BP," Mr Hart said. "BP will have to look at all the options, including either an exit strategy or the company re-committing itself to the joint venture."
The biggest loser of all is Mr Dudley. The Rosneft deal was negotiated at the highest levels of Russian politics, with backing from Vladimir Putin, the all-powerful Prime Minister, and Igor Sechin, the deputy Prime Minister and Rosneft chairman, dubbed by the Russian press as "the scariest man in the world". Its collapse – particularly after BP's alleged assurances that any TNK-BP issues could be resolved – leaves the company looking foolish and its boss ill-advised, according to some in the City. "It is embarrassing for BP and there will be sharp questions about how they got into this mess," a senior commentator said. "Bob Dudley may ride it out this time but he will be on a short leash."
Others are more forgiving, pointing to Mr Dudley's deft handling of the Gulf of Mexico situation, and the bold ambition behind the Rosneft and Reliance deals. "Six months ago people were asking if BP would survive," an analyst said. "Yes, there was an error of judgement, but that is outweighed by what he's achieved."