BP has had a very interesting time of it in Russia – badly screwed on Chernogorneft in the late Yeltsin years, they promptly came back for a second helping, joining with the Russian partners AAR (Mssrs. Blavatnik, Fridman and Vekselberg) to set up TNK-BP.

Second time lucky! The second deal, negotiated by the genial Lord Browne, quickly turned out to be the best investment in BP’s entire history, yielding cashflows nearly equivalent to the purchase price, each year.

Alas, good enough was not good enough, and so a few years ago, BP had the very clever idea of becoming not just an oil major but also a gas giant – this by the simple expedient of ridding itself of its Russian partners to make room for a state-run entity, Gazprom. There was a certain logic to this approach, especially if one believes the disinformation retailed by the Economist and the FT about Russia being a unitary, top-down dictatorship – in which case, one had best align one’s interests with the dictator! Of course, anyone who actually does business in Russia knows what nonsense this is, but more of that later – we are getting a bit ahead of ourselves…

Seeking to replace their Russian partners, BP organized a “secret meeting” with Alexei Miller in Gazprom’s Moscow offices. As any really competent Russian personal assistant could have foretold, the minutes of the meeting were on Mr. Fridman’s desk by the following morning (Alfa Bank’s security services are widely believed to know what you will do, just a few minutes before you yourself know you are doing it…).

Predictably, AAR was not amused by this clumsy attempt to lift them out of a prime asset, on their own turf – and, when irritated, Mr. Fridman is a formidable adversary. The AAR partners emitted some warning sounds, making it abundantly clear that they had no intention of selling out – to Gazprom or to anyone else – with any further attempts to force their hand definitely not to be appreciated.

When BP persisted, Dudley’s life was made an absolute misery; he was ultimately chased across the border and into a secret location somewhere in Europe – from which he tried for a few miserable months to run the joint-venture in exile, before BP finally realized that the game was up and capitulated. Mr. Putin himself brokered a deal whereby BP handed control to Misha Fridman, in return for preserving their share of the bounteous cashflows.

One would have expected the Anglo-American oil giant to count itself really quite fortunate to have survived almost unscathed, and to sit quietly and enjoy their dividends… but no, not them! In the most recent bout of insanity, Bob Dudley (whose reward for the first TNK-BP debacle was the top spot at BP, after Hayward was forced to resign to placate the Americans) followed in his own footsteps by coming back to Moscow for a second helping – only this time in a mega-deal involving Rosneft, not Gazprom. BP negotiated a share swap with Rosneft, along with a major arctic exploration deal. The deal was apparently overseen by Kremlin eminence grise Igor Sechin, while apparently also receiving the blessings of Sechin’s boss, Vladimir Putin. Unfortunately, what Dudley had intentionally refrained from telling his interlocutors was that the TNK-BP shareholder agreement clearly stated that all of BP’s Russian ventures would be carried out via the JV – and that any deal with Rosneft was thus null and void.

Once they recovered from their amazement, the AAR partners were livid, suing BP before Swedish arbitration panels and UK courts, all of whom found in their favour. The deal was frozen in its tracks. Dudley found nothing better to do than to pitch more fuel on the fire by claiming publicly that the courts hadn’t found against them (they very certainly had – the case was utterly unambiguous – BP had simply ignored its contractual obligations assuming that the oligarchs would be swept aside by Sechin… you can’t make this stuff up!) and that his best offer to the boys was $22bn, for which they should count themselves lucky, i.e. BP diplomacy at its best.

Predictably, the Russian response to his salvo was unprintable – so there we stand, with a purported counteroffer from the Russian partners valuing the company at a rather optimistic $60bn, i.e. a $30bn price tag for their AAR stake… BP must miss the Gulf of Mexico!

The best part of this story is that it subsequently transpired that Mr. Putin himself had warned BP that the widely believed centralization of power in Russia was much overstated, and that it was all a very complex business. You would have thought that – after their experience the first time around (Gazprom is not exactly a minor player on the local pitch) – they would have figured this out by themselves… but never underestimate the power of arrogance.

Eric Kraus