BP moves to settle Russia JV dispute

London -  BP and Alfa Access-Renova (AAR) have agreed to overhaul the governance structure of their TNK-BP joint venture, Russia's third largest oil company, which posted record profits of $4.7 billion in the first half of this year - more than double those in the prior year period, on sales of $28.3 billion.

Under a memorandum of understanding (MOU) to be finalised in detail over the coming months, the partners said they aim to better align their respective interests and improve the transparency of TNK-BP's equity. The agreement envisages the restructuring of the TNK-BP board through the appointment of three new directors independent of either side. The MOU includes an option to sell up to 20% of a subsidiary of TNK-BP through an initial public offering (IPO).

BP chairman Peter Sutherland said that an agreement would align the two sides around a shared agenda for value growth and allow BP and AAR to move forward, relieving recent tensions. "It will create a stable base from which to grow the joint venture to the benefit of everyone involved, including the Russian state for which strong capital investment and continued technical innovation to boost declining oil output are so important," he said.

BP chief executive Tony Hayward described the agreement as "a sensible means of resolving a situation that could not continue without causing serious damage to what has been an immensely successful joint venture for all concerned. I now look forward to a fruitful conclusion of negotiations so that we can rebuild trust with AAR and resume our record of success for the benefit of all parties."

The MOU envisages the appointment of a new independent chief executive nominated by BP and approved by the TNK-BP board. The management committee, responsible for running operations, will be reduced significantly from the current 14 members and will include the chief executive, the chief operating officer, the chief financial officer and an executive director. The main board of TNK-BP will be adjusted in size to four representatives each from BP and AAR, together with the three new independent directors not affiliated to either side. The company will continue to operate under English law.

Current chief executive Bob Dudley will step down before the end of the year. In nominating his replacement, BP will offer a Russian-speaking candidate with extensive Russian business experience. The new CEO will focus on further improving transparency, financial returns and the market value of the company's shares, added a BP statement.