Issue of the week: The ‘coup’ at BP’s Russian affiliate

Battles for corporate control are often bruising, said Gregory L. White in The Wall Street Journal. But the fight over a Russian oil venture is so rough, the company’s starting to look like “a country on the verge of a coup.” Robert Dudley, the American CEO of TNK-BP, a joint venture of British Petroleum and a consortium of Russian investors, is now trying to manage the company from Central Europe—having fled Russia last week, complaining of official “harassment.” Until his departure, Dudley and his management team struggled to run the company while being undermined by managers loyal to the Russian shareholders. In fact, some corporate functions, including the legal department’s, “are effectively controlled by the Russian shareholders” instead of the company’s ostensible management. To make matters worse, the government of President Dmitri Medvedev appears to be siding with Dudley’s adversaries, entangling the company in a slew of tax, labor, and immigration investigations.

The leaders of the Russian shareholder faction bill themselves as activists in the mold of Carl Icahn and Kirk Kerkorian, said Andrew E. Kramer in The New York Times. But Icahn and Kerkorian target underperforming companies. That description certainly doesn’t apply to TNK-BP, which this week reported impressive quarterly profits that beat analysts’ expectations. “The company has delivered a total shareholder return of $36 billion,” including more than $18 billion in dividends, since its founding in 2003. That’s the best performance of any major Russian oil company during that period, and the Russians are among the chief beneficiaries. Still, they insist that Dudley manages the venture to benefit BP rather than the Russian shareholders.

It’s fairly clear what’s really going on here, said Steven Mufson in The Washington Post. “BP suspects that its Russian-based partners want to siphon off prized assets and seize management control,” just as an earlier generation of Kremlin-allied oligarchs did when Russia’s oil assets were privatized in the 1990s. What’s most alarming is the Russian government’s apparent connivance in the effort. The feud “has become a test, in the eyes of many foreign investors, of whether it is safe to invest in Russia and whether the apparatus of the state can be marshaled against foreign investors.”

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The dispute has already soured relations between Britain and Russia, said Anna Shiryavskaeya in Platt’s Oilgram, an industry newsletter. British Prime Minister Gordon Brown and Medvedev had a “very frank” discussion of the TNK-BP dispute during the recent G-8 summit meeting in Japan, according to Brown. But he came away from the talks “empty-handed,” said George Parker in the Financial Times. In fact, Medvedev was annoyed that Brown even raised the issue. Meanwhile, Dudley continues to try to manage TNK-BP from a distance. It’s “like driving a car and sometimes the brakes work and sometimes they don’t,” Dudley said. How much longer he holds the steering wheel, though, is anyone’s guess.