BP has made staggering profits in Russia. It has been a superb investment for the British oil major but has caused a lot of noise. Its joint venture with Russia’s TNK has been a long saga of unpleasant partnerships, bitter disputes and unpredictable outcomes that have shed a negative light on Russia’s business environment.
“Rarely has such a big profit looked so bad,” Chris Weafer, chief strategist at Troika Dialogue in Moscow, wrote in a note to investors referring to BP's joint venture in Russia, the country’s number three oil producer.
“BP has made huge returns on Russian investment. Referring to the media coverage of the event, Weafer made the point that although it reads mainly negative for the Russia investment case, i.e. “Russia is a dangerous place in which to invest”, in fact BP paid $7bn for its 50% stake in TNK in 2003 and since then it has received $19bn in dividends and, according to reports, is in line to receive $25-30bn for that stake.
“This is a profit of $37-43bn, or a staggering 530-600% over nine years. There are not many investments of this size that have shown a similar scale of return over that timeframe. Time and time again, Russia suffers disproportionately from poor PR and image management than the underlying facts justify,” Weafer wrote.
BP and the Alfa-Access-Renova consortium of four Soviet-born tycoons, who share control of TNK-BP, have traded accusations of breaching their shareholder agreement in a struggle over strategy and control that has pushed their partnership to the edge of the cliff. The dispute heightened in the failure of BP's attempt to tie up with Russia’s Rosneft in 2011 because of restrictions spelt out in the pact on BP's right to do business in Russia independently from TNK-BP.
On 1 June, BP announced that it would pursue a sale after receiving expressions of interest in its one-half stake in TNK-BP. “A week ago [on 1 June] we announced that we have notified our partners in TNK-BP – AAR – that we intended to pursue a potential sale of our interests in TNK-BP,” David Nicholas, a BP spokesman in London, told New Europe on 8 June. “We said we had received some unsolicited indications to purchase our stake and we intended to pursue them. Under the TNK-BP shareholder agreement a step we have to take is notify our partners. So we have done that. Essentially it is an enabling step for us to move forward to look at the potential,” Nicholas said. But he declined to identify potential bidders. “Exactly who we had expressions of interest from, how many, we are not going to make any comment on. We are also fully aware that taking a step like that opens up a world of speculation and will continue.” Most likely a lot of major oil companies when they have the next conference will be asked whether they are buying TNK-BP. “We certainly intend to pursue a sale but whether or not it will actually result in a sale or not, it’s not certain and that will only be played that in time,” the BP spokesman said.
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