C-44 Part 4: Case Studies
of oil projects across Russia, including a Royal Dutch
Shell project in 2006.^12 In 2007, in the wake of state alle-
gations that it had violated license terms, TNK-BP agreed
to sell its east Siberian Kovykta gas field to Gazprom.^13 In
2008, Russian police raided TNK-BP’s Moscow offices as
part of an alleged criminal probe.
Tensions between BP and AAR flared in June 2008,
when AAR shareholders in TNK-BP “threatened BP with
legal action to strip BP-nominated directors of their pow-
ers in TNK-BP.”^14 This threat ultimately led to the ouster
of TNK-BP CEO Bob Dudley and the creation of a board
of directors for TNK-BP that was meant to ensure equal
representation for both BP and AAR.^15 In January 2009,
Mikhail Fridman of AAR had taken over as chairman of
TNK-BP. “Mr. Fridman’s appointment was perceived as
BP’s final admission that it was ready to cede influence”
to AAR.^16 In November of the same year, Maxim Brodsky
was nominated as TNK-BP’s new chief executive.
BP and Rosneft
Back in 1998, shortly after purchasing its initial 10%
stake in Sidanko, BP began a joint venture with Rosneft
to explore and mine licensed areas of Sakhalin Island, off
the east coast of Russia, with oil and natural gas reserves
estimated at over ten billion tons. In 2002, the two firms
announced a joint project to explore and develop an area
of the island known as Sakhalin-5. Rosneft took on 51%
of the project, while BP would be the minority share-
holder at 49%.^17 An additional project to explore another
area, Sakhalin-4, followed in 2006.
Both Sakhalin projects were developed under a
carry agreement, in which BP funded all exploration and
Rosneft was only liable for costs if the project was success-
ful. The alliance had cost approximately $80 million USD
through 2006; after the second Sakhalin site was added,
the cost of the project in its entirety was estimated to be
an additional $700 million USD.^18 But according to both
companies, continued exploration offered no significant
economic value, so the two majors allowed the Sakhalin-4
license to expire in 2008 and the Sakhalin-5 license two
years later. The companies continued joint exploration of
other sites surrounding the island, with some success.^19
Proposing a new alliance
In January 2011, following the Deepwater Horizon oil
spill in the Gulf of Mexico and the acrimony with its
Russian partners in TNK-BP, BP proposed a new stra-
tegic alliance with Rosneft, which was still 75% state-
owned. BP proposed a share swap worth approximately
$16.5 billion USD, in which Rosneft would take on a
5% stake in BP, while BP would secure 9.5% of Rosneft
(bringing its total share of Rosneft to 10.8%). The goal of
the share swap was for the two oil majors to collaborate
on the development of the oil reserves of the Kara Sea in
the Russian Arctic.The problem
The critical issue that would ultimately undermine
the share swap was BP’s existing partnership in Russia,
TNK-BP. Due to BP’s existing alliance with AAR in TNK-
BP at the time of the proposed BP-Rosneft alliance, the
Russian consortium made legal claim to a share in the
Arctic shelf development. AAR argued that the new
BP-Rosneft strategic alliance undermined its extant
relationship with BP.
AAR claimed that the BP-Rosneft alliance violated
the 2009 TNK-BP shareholders’ agreement. According
to AAR, the shareholders agreement stated: “AAR and
BP must implement all the oil and gas projects in Russia
and Ukraine only through TNK-BP. Only if the TNK-BP
shareholders have dubbed a certain project as uninter-
esting, can BP implement it independently in Russia.”^20
In short, AAR believed that BP could not form a new oil
and gas exploration partnership with Rosneft without
working through TNK-BP, thereby including AAR in
any new strategic alliance.
In order to avoid being excluded from the Kara Sea
development, the AAR group sought an interim injunc-
tion in an English court to stop the BP-Rosneft alliance.
AAR [believed] the shareholders agreement stipulated that
if either side comes up with a new opportunity, it must,
‘before any material negotiations commence with a third
party,’ notify the chief executive of TNK-BP with a view to
offering the opportunity for consideration within 45 days
by the joint venture’s board.^21
London’s High Court granted AAR a temporary
injunction against the strategic alliance between BP and
Rosneft on February 1, 2011.
In addition to the filing the court injunction, TNK-BP
also offered $8.1 billion USD for the 5% stake in BP that
Rosneft was due to acquire. “Under the terms of TNK-
BP’s offer for the 5% of BP, it would buy that stake and
then swap it for 10% of Rosneft.”^22 The critical component
of the TNK-BP offer was that it would own Rosneft, and
BP would own only half of the TNK-BP stake in Rosneft,
although it would gain $8.1 billion USD in cash.^23
In response to the TNK-BP offer, Rosneft reaffirmed
its plans to complete the Kara Sea alliance with BP:
“TNK-BP has never been considered a potential partici-
pant in the alliance due to its lack of required competence,”
Rosneft said. Deputy Prime Minister Igor Sechin—who