Thursday, February 10, 2011

Battle of the Billionaires

The BP-Rosneft share swap that opens up a large swath of the Artic for oil exploration is under judicial challenge. BP's non-Rosneft partner in Russia is the joint enterprise TNK-BP. Major shareholders in the latter company are in a consortium, known as AAR, and they include Alpha Group's Mikhail Fridman as well as fellow oligarchs German Khan, Viktor Vekselberg and Leonard Blavatnik. These shareholders claim that the BP-Rosneft deal is in violation of the TNK-BP agreement that gives the partnership the right of first offer for any BP projects in Russia. AAR has filed a lawsuit in the High Court of Justice in London, who issued an injunction against the deal until March while the court examines the facts of the case.
Analysts do not believe that the oligarchs want to halt the Rosneft deal, especially since it has the blessing of the highest levels of Kremlin leadership. Instead, the legal challenge is designed to obtain concessions from the company or the government. Chris Weafer, chief strategist at UralSib, said either TNK-BP wants access to the new production, or AAR wants the government to buy their shares of TNK-BP.
TNK-BP's legal counsel has notified David Peattie, one of BP's representatives on the TNK-BP board, that he was in breach of his duties because he had participated in the negotiations with Rosneft. TNK-BP said if Mr. Peattie did not refrain from future talks, that TNK-BP would begin legal action against him. In the meantime, the partners have announced that they will block the final dividend payment to BP if the controversy is not resolved.
The stakes involved in the controversy are huge. Russian Deputy Prime Minister and Chairman of Rosneft, Igor Sechin, estimates that the initial blocs Rosneft-BP will explore may hold 35 billion barrels of oil and 10 trillion cubic meters of gas (equivalent to 63 billion barrels of gas). If these estimates are correct, the field holds roughly one third more oil and gas than the North Sea, and would increase Russian gas reserves by 25%.
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