BP faces endgame

The struggle for control of BP's Russian joint venture TNK-BP has escalated into open warfare, with a restriction on working visas that could see some of the company's most senior expat staff sent home

Every war creates refugees. So it was in Russia yesterday, where the first victims from the bitter boardroom battle which has erupted between BP and the Russian billionaires with whom it owns TNK-BP began trickling out of the country.

According to sources close to the situation, a handful of foreign employees of Russia's third-largest oil producer were forced to leave after their visas were not renewed. They could be the first of many.

Robert Dudley, the American chief executive of TNK-BP, fired off an email to his almost 100 foreign workers, whose permits expire at various times this month, warning: "We are very likely to see the temporary relocation of some of our expatriate staff from Russia."

The development, which Mr Dudley called "unfortunate and harmful", was the most dramatic since the four Russian billionaires who own half of TNK-BP launched an elaborate campaign to oust him and take greater control of the group. Mr Dudley, the chief operating officer Tim Summers and the finance director James Owen are also in the firing line and could be forced to leave if their visas are not renewed.

At stake is control of one of the world's top-ten oil producers. Since it was formed in 2003 through a 50-50 alliance between BP and Alfa Access Renova (AAR), the consortium of oligarchs which includes Viktor Vekselberg, Len Blavatnik, Mikhail Fridman, and German Khan, TNK-BP has been governed by an uneasy structure that gave neither side control. That arrangement has now broken down entirely and, barring an 11th-hour resolution, BP is at risk of losing its grip on the top of the company within days. AAR's strategy seems to be to make BP so uncomfortable that it capitulates in some way. "What this is all about is an attempt to renegotiate the shareholder agreement and how the company is governed," said an oil industry source. The ultimate endgame, however, remains unclear.

BP knows that losing control or being forced out of TNK-BP, which provides about 15 per cent of its profits and 25 per cent of its production, would be disastrous, so it has dug in its heels. High-level talks between BP and AAR continue, even as Mr Dudley fights a rearguard action against a campaign being waged from within TNK-BP by Mr Kahn and Mr Vekselberg, both executives with the group.

Relations between the two sides could not be much worse. Last month, the BP chairman Peter Sutherland said its dispute with AAR was "over control, and perhaps ultimately ownership of the company". He added: "This is just a return to the corporate raiding activities that were prevalent in Russia in the 1990s." Mr Fridman hit back by accusing Mr Sutherland of using Nazi-style "Goebbels propaganda". Something has to give. In the background lurk Gazprom and Rosneft, the state oil giants which are thought to be interested in buying out either BP or the Russians. TNK-BP is the only major resource group in Russia not controlled or part-owned by the Kremlin. Few think it will stay that way, even though the heads of both Gazprom and Rosneft have said they have no interest in buying into TNK-BP.

The Prime Minister, Dmitry Medvedev, meanwhile, characterised the dispute as a disagreement among investors that should be solved within Russia's legal framework. He downplayed the notion that the Kremlin was pulling the strings in the background.

"Any additional strengthening of the role of the state, increasing its presence in the economy, is not foreseen," he said. "On the contrary, we will take action to reduce the presence of the state in the economy." Many are watching the situation for an indication of whether Mr Medvedev will deliver on his promise to curb corruption and impose greater rule of law.

Despite the speculation, the bust-up boils down to a fairly straightforward clash of shareholders with starkly diverging interests in one of the world's largest oil companies. In that context, the AAR consortium has been diligently trying to cast itself as a purely financial, private equity-style investor displeased with TNK-BP's cash generation and dividend policy.

At a strategy presentation in February, Mr Dudley admitted that the low-hanging fruit of the early years, during which TNK-BP was able to achieve big leaps in production and profitability, largely through increasing efficiency in existing fields, had been picked. What was now required, he argued, was an aggressive investment plan that would pay off perhaps five years down the road. In the short term, that means much less free cash, and smaller dividends. He said the group planned to invest $4bn in 2008, up from just $900m in 2004.

This is the crux of the issue and has led TNK-BP to the brink of being stripped of up to 250 key foreign workers, although it will be only temporarily for some of them. Already, 148 BP staff on secondment to TNK-BP have been barred from working in Russia by a court order relating to their immigration status. Many of those caught in the crossfire have specialised technical knowledge and work on group strategy. One former BP employee was arrested for alleged espionage. Last month, Mr Dudley was called to give evidence to Russian officials about possible labour law violations. AAR, meanwhile, has boycotted meetings of the board and of investors, and has called repeatedly for Mr Dudley's removal.

TNK-BP's 90-plus foreign workers – about 40 of them ex-BP staff – have to renew their visas each year. Earlier this year, Mr Dudley told his legal team to apply for about 150 visas – because some workers need more than one, depending on their job and nationality. However, responsibility for handling the request fell to Mr Khan, one of the disgruntled AAR shareholder-managers who had clashed with Mr Dudley over the way he ran the company. Instead of 150 visa applications, Mr Khan asked for only 63. Mr Dudley did not find out about the subterfuge until much later, at which point he went over Mr Khan's head and requested 150 visas from immigration officials.

Faced with two different requests, the Russian authorities were unsure which to process. AAR, represented by Mr Vekselberg, won the argument. TNK-BP received permission to apply for 71 visas, fewer than half the number it needs to keep all its foreign workers in Russia.

The other problem is timing. Visa processing often takes six weeks, and those of TNK-BP's expat staff are expiring every day. None will be ready by the end of this month, so BP is trying desperately to resolve the issue. At worst, it could be faced with a leadership vacuum, with TNK-BP's chief executive and other senior directors forced out of Russia, leaving a group that turned over $35bn last year in the hands of investors diametrically opposed its current management.

It is unclear what other tools AAR shareholders may deploy to bend BP to their will. In his letter to staff yesterday, Mr Dudley admitted: "I hope the visa and work permit issues can be resolved satisfactorily in due course, although there is presently no clear indication how, at what level and by when such resolution may occur."

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

Greece referendum

Greeks say 'No' to austerity and plunge Europe into crisis
Ten years after the 7/7 terror attacks, is Britain an altered state?

7/7 bombings anniversary

Ten years after the terror attacks, is Britain an altered state?
Beautiful evening dresses are some of the loveliest Donatella has created

Versace haute couture review

Beautiful evening dresses are some of the loveliest Donatella has ever created
No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

No hope and no jobs in Gaza

So the young risk their lives and run for it
Fashion apps: Retailers roll together shopping and social networking for mobile customers

Fashion apps

Retailers roll together shopping and social networking for mobile customers
The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate