BP’s Dudley Bested by The Russians

BP’s Dudley Bested by The Russians (Again)

By Glenn Fydenkevez

Robert Dudley, the American CEO of BP PLC, has requested and received a one-month deadline extension to close an Arctic prospecting joint venture and share swap with Russia’s OAO Rosneft. The $16 billion-dollar deal and Dudley’s credibility hang in the balance. Unfortunately, he’ll need more than a month; he’ll need a miracle.

There is a second Russian partnership involved, and they simply will not allow the deal to happen unless it happens on their terms. AA Renova, an investment entity which controls BP’s current Russian joint venture, TNK-BP, is using aggressive legal tactics to stop BP and Rosneft from joining forces.

AA Renova is claiming that BP is contractually obligated to do the Rosneft Deal through TNK-BP. Are they? Who knows, but the whole thing is tied up in Russian courts and is unlikely to be resolved over the course of a one-month extension that’s already half over. 

It’s clear to Dudley, energy investors, and oil industry, that if BP wants to get into bed with Rosneft (which they do) it must get out of bed with Renova. To-that-end Dudley offered Renova a full value buy-out for Renova’s stake in TNK-BP; just over $27 billion American dollars. The offer was rejected out-of-hand.

The four Russian billionaires who own Renova aren’t interested in “full value”. They want to make a killing and don’t care if they kill BP’s pending deal with Rosneft. The oligarchs running Renova have indicated that they won’t start listening to offers until those offers approach $35 billion.  

The fact that Renova won’t even consider BP’s very fair offer indicates a distinct unreasonableness that doesn’t bode well for the Rosneft deal. In-other-words, it is exceedingly unlikely that Dudley will be able to get this very important deal done in a timely, efficient manner.

Dudley had the right idea when he negotiated with Rosneft. He wanted to get out of the Gulf of Mexico, where the name BP is (oil soaked) mud, he wanted to revitalize a wounded company, and set BP up for future, long-term growth. Plus, the new CEO wanted to establish himself as an aggressive, forward thinking leader. Unfortunately, for him and for BP shareholders, he’s less than thirty days away from failure. 

And, to-make-matters-worse, this isn’t the first time he’s been had by this same group of Russians.

In 2008 Dudley was in-charge of TNK-BP when things went horribly wrong. Dudley was run out of Moscow when Renova Executives accused him of harassment and bullying after a board meeting that almost came to blows. Dudley was removed from the leadership of TNK-BP and replaced by Mikhail Fridman, one of the aforementioned Russian billionaires that owns Renova.

Fridman is still in charge at TNK-BP and he’s been running Dudley ragged over this Rosneft deal from the start. Fridman and his three partners, Viktor Vekselberg, German Khan and Len Blavatnk, have the home-court advantage and Dudley should have known better then to take them on as one of his first big moves as CEO, especially considering that they’ve beat him badly once before.

So what are Mr. Dudley’s options?

He can agree to pay Renova 40% more for its stake in TNK-BP then the shares are worth. That would get the deal done but he’d have to explain to shareholders why his fumble cost them and extra $8 billion.  

He can give in to Renova’s demand and run the Rosneft deal through TKN-BP. Everyone would make money over time but at the cost of embedding Renova into BPs future Russian operations. Plus, to accomplish this he would have to convince Rosneft to agree to partner with Renova. No easy task given that Rosneft doesn’t like Renova any more than Dudley does. Rosneft’s pot would have to be significantly sweetened at the expense of BP’s share. 

He could sell BP’s stake in TNK-BP to someone else (someone who can go toe-to-toe with the oligarchs). But he’d be jettisoning a huge portion of BP’s oil reserves and profits. 

Finally, he can, for the second time in recent memory, flee Russia with his tail between his legs. This would be bad;

bad for Dudley who needed to show strength, and bad for BP which needs to replace the Gulf as the company’s catalyst for growth.

When newly minted CEO Robert Dudley struck a deal with Rosneft he turned BP’s Russian partners into BP’s Russian Rivals. Unfortunately for shareholders of BP, they’ve bested him again.