07-24-2008, 09:54 PM
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>BP Losing 23% of Production Looms as Russians Assail Investment </b>
By Stephanie Baker-Said and Torrey Clark
July 24 (Bloomberg) -- The dispute that has come to symbolize the challenges of producing oil in an era of high prices and short supplies boiled over in May. That's when BP Plc, the world's third-largest oil company by sales, faced off in a private meeting with its billionaire partners in a 50-50 Russian joint venture called TNK-BP Ltd. at the beachfront Four Seasons Hotel near Limassol, Cyprus.
<b>The Russian side had a demand: The ouster of Robert Dudley, the American oil executive who had been running the venture since it was formed in 2003. They held Dudley responsible for crippling profits at TNK-BP, Russia's third-largest oil producer.
In the room were some of Russia's richest men, including Mikhail Fridman, one of the original oligarchs who made their fortunes as President Boris Yeltsin sold state enterprises. Also there were Viktor Vekselberg, who built his wealth trading metals and computers, and his business partner and friend from their student days in Moscow in the 1970s, Len Blavatnik. </b>
BP Chief Executive Officer Tony Hayward had arrived from London to subdue the rebellion by the billionaires who hold half of the venture's shares. His company, beset by project delays, safety failures and a falling share price, can't afford to lose sway over its Russian assets. BP depends on TNK-BP for 23 percent of the oil and gas it produces, according to company filings.
<b>Dudley chose not to attend. He stayed in Moscow because of concerns he might not be allowed back into Russia if he traveled abroad, say two people familiar with the matter. </b>
Neither side got its way. Hayward refused to discuss removing Dudley, says Vekselberg, 51, who in 2004 paid more than $100 million for a collection of Faberge eggs. The Russian shareholders told Hayward there was nothing else to talk about.
8.2 Million Barrels
``It made no sense to continue the discussions when Bob Dudley is running the company in the interests of one shareholder,'' Vekselberg says. ``From the first day, BP regarded TNK-BP as a subsidiary.'' The three billionaires, who have seats on TNK-BP's board, bowed out of the directors meeting scheduled for the same day.
..........
The billionaires have zeroed in on costs, especially for the BP engineers and managers who were hired under contract to offer technical expertise on squeezing more oil out of mature fields. They say these people cost the company about $120 million a year and freeze out promising Russian talent.
``There is a good English word: arrogance,'' Fridman told reporters in June. ``We have felt a kind of condescension for a long time.'' Vekselberg, in an interview in his office down the hall from Dudley's in TNK-BP's headquarters in Moscow, says <b>the BP contractors cost TNK-BP three times more than equivalent Russian employees. He's particularly upset by perks the company subsidizes for non-Russian staff, such as private school for their children.</b>
``The industry is short of specialist staff,'' Graham counters. ``You have to pay people a lot of money to come and work in Moscow. That's the market.'' <b>The average BP contractor costs the joint venture $685,000 a year, including salary, housing, travel and schooling costs,</b> according to Vladimir Buyanov, a BP spokesman in Moscow
<!--QuoteEnd--><!--QuoteEEnd-->
By Stephanie Baker-Said and Torrey Clark
July 24 (Bloomberg) -- The dispute that has come to symbolize the challenges of producing oil in an era of high prices and short supplies boiled over in May. That's when BP Plc, the world's third-largest oil company by sales, faced off in a private meeting with its billionaire partners in a 50-50 Russian joint venture called TNK-BP Ltd. at the beachfront Four Seasons Hotel near Limassol, Cyprus.
<b>The Russian side had a demand: The ouster of Robert Dudley, the American oil executive who had been running the venture since it was formed in 2003. They held Dudley responsible for crippling profits at TNK-BP, Russia's third-largest oil producer.
In the room were some of Russia's richest men, including Mikhail Fridman, one of the original oligarchs who made their fortunes as President Boris Yeltsin sold state enterprises. Also there were Viktor Vekselberg, who built his wealth trading metals and computers, and his business partner and friend from their student days in Moscow in the 1970s, Len Blavatnik. </b>
BP Chief Executive Officer Tony Hayward had arrived from London to subdue the rebellion by the billionaires who hold half of the venture's shares. His company, beset by project delays, safety failures and a falling share price, can't afford to lose sway over its Russian assets. BP depends on TNK-BP for 23 percent of the oil and gas it produces, according to company filings.
<b>Dudley chose not to attend. He stayed in Moscow because of concerns he might not be allowed back into Russia if he traveled abroad, say two people familiar with the matter. </b>
Neither side got its way. Hayward refused to discuss removing Dudley, says Vekselberg, 51, who in 2004 paid more than $100 million for a collection of Faberge eggs. The Russian shareholders told Hayward there was nothing else to talk about.
8.2 Million Barrels
``It made no sense to continue the discussions when Bob Dudley is running the company in the interests of one shareholder,'' Vekselberg says. ``From the first day, BP regarded TNK-BP as a subsidiary.'' The three billionaires, who have seats on TNK-BP's board, bowed out of the directors meeting scheduled for the same day.
..........
The billionaires have zeroed in on costs, especially for the BP engineers and managers who were hired under contract to offer technical expertise on squeezing more oil out of mature fields. They say these people cost the company about $120 million a year and freeze out promising Russian talent.
``There is a good English word: arrogance,'' Fridman told reporters in June. ``We have felt a kind of condescension for a long time.'' Vekselberg, in an interview in his office down the hall from Dudley's in TNK-BP's headquarters in Moscow, says <b>the BP contractors cost TNK-BP three times more than equivalent Russian employees. He's particularly upset by perks the company subsidizes for non-Russian staff, such as private school for their children.</b>
``The industry is short of specialist staff,'' Graham counters. ``You have to pay people a lot of money to come and work in Moscow. That's the market.'' <b>The average BP contractor costs the joint venture $685,000 a year, including salary, housing, travel and schooling costs,</b> according to Vladimir Buyanov, a BP spokesman in Moscow
<!--QuoteEnd--><!--QuoteEEnd-->