Far from the Gulf of Mexico, a subsidiary BP had established in Siberia was forced into bankruptcy at the end of last week when BP called in loans. BP had negotiated much of this year with Russia’s state-owned Gazprom and Rosneftegas, hoping to find mutually agreeable arrangements that would salvage its investments in the Kovykta gas field and in RUSIA Peteroleum, in which the joint venture TNK-BP holds a 62.9 percent stake. But on June 3 it threw in the towel.
According to a Financial Times analysis, BP’s decision to force RUSIA into bankruptcy court may indeed be its only hope of recovering a $600 million investment in Kovykta, but it’s risky, because the Russian government could simply revoke its license to develop the field, leaving it with nothing.
The New York Times said that TNK-BP’s Kovykta venture “embodied” the fierce desire of investors to connect Russia’s oil riches with East Asia’s insatiable energy demand. That ambition put investors into direct conflict with the Putin regime, which has made no secret of its intention to cement a Eurasian natural gas monopoly, leaving it in a position to play off European and East Asian customers. Things got so heated between the Russians and BP that at one point TNK-BP’s CEO Robert Dudley withdrew to a secret location, citing a long campaign of legal harrassment by the Russian authorities.
Ironically, just as BP was shutting down its Siberian subsidiary last week, it announced it was bringing Dudley in to manage its Gulf clean-up operation. Perhaps BP is seeking to get the spotlight off its embattled chief executive, the tone-deaf Tony Hayward. During the last month BP has lost a third of its value, and as the Financial Times put it in a separate analysis, “when a whale is wounded, it does not take long for the sharks to circle.”
Because BP is exposed to such huge long-term financial risks a takeover is most unlikely, at least in the near future. But as its legal and financial liabilities mount, its longtime competitors and rivals are sure to be smirking, among them Russia’s Vladimir Putin, whose environment complaints about oil companies like BP used to be dismissed as mere pretense.