BP finalises Russia JV peace deal

BP finalises Russia JV deal

London - BP has announced today that the deal agreed in principle last September to revise the shareholder agreement with its Russian partners in TNK-BP has now been finalised. The move, said BP, paves the way for the next phase in the development of Russia's third largest oil and gas company by improving the balance of interests between the company's 50:50 owners, BP and Alfa Access-Renova (AAR).

Changes include governance adjustments such as replacing the current evenly-balanced main board structure with four representatives each from BP and AAR plus three independent directors agreed by both sides. Unanimous board support will be required for certain matters, including substantial acquisitions, divestments and contracts, and projects outside the business plan, together with approval of key changes to the TNK-BP group's financial framework and of related party transactions.

According to BP, it will continue to nominate the chief executive, subject to main board approval, and AAR will continue to appoint the chairman. The new board members are expected to be announced shortly.

Following Robert Dudley's recent resignation, a new CEO is to be announced in the coming weeks. The new CEO, who is required to have substantial Russian work experience and Russian language proficiency, will head a new management board initially comprising the CEO, the chief operating officer, the chief financial officer and three executive directors. This, noted BP, will be a significantly smaller management team than in the past.

The parties also agreed to revise the charters of significant TNK-BP group subsidiaries so that they will have BP- and AAR-appointed directors on their boards and, in some cases, will also have an independent director to avoid deadlock on certain matters. These significant subsidiaries account for a substantial part of the TNK-BP group's value and include TNK-BP Holding, the TNK-BP group's principal holding company in Russia.

According to BP, the shareholders have also resolved, or have agreed a process for resolving, all outstanding claims between them, including those relating to Russian back taxes. The suit filed in Russia by a minority shareholder in TNK-BP Holding, alleging that an agreement for BP specialists to provide services to the TNK-BP group is invalid, has been withdrawn.

The parties have reiterated their agreement to a potential future sale of up to 20 per cent of a subsidiary of TNK-BP through an initial public offering (IPO) at an appropriate future point, subject to certain conditions and the consent of the Russian authorities.

TNK-BP posted record profits of $4.7 billion in the first half of 2008 - more than double the $2.1 billion for the same period in 2007. Revenues totalled $28.3 billion in the first half of 2008, compared with $17 billion in the first half of 2007.