BP’s Russian row may hit production
The dogfight between BP and its four oligarch partners could hit Russian oil production next year after the quartet demanded a $900m cut in spending at joint venture TNK-BP.
The development is the latest in a long-running battle at the 50-50 venture between the British oil giant and its billionaire partners – Mikhail Fridman, Viktor Vekselberg, Len Blavatnik and German Khan – over the firm’s direction.
Earlier this week 60 skilled BP technical workers were forced to leave TNK-BP because their visas had run out. The billionaires said they were no longer needed, but BP disagrees.
Industry sources said the proposal to cut £900m out of TNK-BP’s $2.3bn capital spending over the next six months and the loss of the firm’s technical expertise in key areas could hurt plans by Russia, the world’s second largest oil exporter, to boost production by up to 2 per cent next year after national output fell in the first half of 2008 for the first time in a decade.
Two major new oilfield projects – at Verkhnechonsk and Uvat – could be put at risk if the cuts are made. Though, if drilling at existing fields is cut instead, up to 200m barrels of production could be lost.
This will affect Russia’s national production,” said one oil analyst.
City Views: Is it time to stop doing business in Russia?
Tim Pither (Freelance Regulatory Consultant): “This is not the time to pull out of Russia. The situation with BP is a localised one, and it isn’t as if the company withdrew for ethical reasons. Russia is a very big market, particularly for oil and gas, and it’s no worse in terms of regulation than many other countries. Companies shouldn’t make any rash decisions.”
Zafer Djabri (Financial Services Consultancy Risk Care): “I can’t imagine a time when we wouldn’t want to do business with Russia – it’s too big a market to leave. Obviously it’s a very different working environment over there, but the change over the last 5-10 years has been tremendous in terms of compliance and regulation. There may still be difficulties, but Russia is improving all the time.”
Tim Smeaton (COO of Recruitment Firm Hydrogen Group): “There is far too much opportunity in emerging markets, especially with the UK economy looking so ropey, to pull out of Russia now. The country is rich in resources and the prospects for globalisation are very high. The situation with BP is probably indicative of some problems, but the opportunity is too significant to pass up.”
Marie Ferreira (Crown House Technologies): “Perhaps companies should be thinking about stopping doing business in Russia – the Russian government isn’t exactly known for being regulation-friendly. There are two sides to the story, though – companies would lose a lot of money by withdrawing, which is obviously a factor putting them off pulling out.”