WikiLeaks: BP's Russian arm looked at deals with rogue states

BP “systematically” explored new ventures in “rogue states” including Burma, Cuba and Sudan under a controversial arrangement with the billionaire oligarchs who co-own its lucrative Russian arm, leaked documents obtained by The Daily Telegraph have disclosed. 

Bob Dudley, the new American chief executive of BP

The oil company’s subsidiary in Russia, TNK-BP, investigated working in parts of the world British businesses would not normally consider because of international sanctions, according to the classified US government papers.

When the board of TNK-BP vetoed the extraordinary proposals, one of the company’s Russian directors “farmed out” the projects to his own private firm, the documents claim.

The fallout from the row led to the BP chief executive being forced out of Russia and will lead to serious questions over the long term sustainability of the company’s operations in the country.

The allegations are contained in files that disclose for the first time the inside story of the British oil company’s troubled history in Russia.

Dozens of documents from the WikiLeaks website reveal the controversial steps taken by the company in a desperate race to secure new sources of oil. They also disclose the company’s deep misgivings towards another Russian oil firm which it is now partnering.

BP is due to release its end of year results today, with experts predicting the company’s first loss for two decades after the Gulf of Mexico oil spill. Its quarterly dividend is expected to be halved.

BP’s safety record has been heavily criticized by the American government, a fact which is thought to have pushed the oil company to explore new deals in Russia. The secret BP files will lead to serious questions over the new strategy.

BP is one of the most important companies on the London stock exchange and its success has a major bearing on the fortunes of millions of pensioners and small investors. One leaked document discloses that a feud between Bob Dudley, the company’s current global chief executive, and his Russian partners was so bad at one point that he had to flee the country and go into hiding after “sustained harassment” from Kremlin agents.

The leaked files show what company bosses thought of their Russian partners in TNK-BP, with senior executives labeling one oligarch “deranged”, as well as the power struggles at the heart of the British company itself.

They also uncover the fraught history between the two men at the top of the new Rosneft-BP alliance, with Mr Dudley accusing the chairman of Rosneft of backing the oligarchs’ “war” against him.

TNK-BP is responsible for about a quarter of the British oil company’s global production. It was formed in 2003 in a deal between BP and the oligarchs who make up the Alfa-Access-Renova (AAR) consortium.

Speaking to US diplomats in Moscow at the height of the crisis in June 2008, Mr Dudley said the Russian billionaires wanted to expand TNK-BP’s operations into Burma, Cuba and Sudan, “which posed problems for BP given US and other Western sanctions”. According to the embassy files, one of TNK-BP’s directors, German Khan, was behind the move. “Dudley said AAR and, in particular, German Khan, had been systematically using TNK-BP resources to vet these projects.’’

Once rejected by the board, they were then farmed out to one of his own companies, Norbest.

When Mr Dudley refused to allow company resources to be used for vetting these projects, he accused Mr Khan of launching a campaign against him, the papers said.

The US ambassador to Russia, William J Burns, described the tangled internal relations between BP and the billionaires as a “tale of intrigues inside intrigues”. He wrote: “As one BP official told us when the company was forming, 'We have a love-hate relationship. They love us (our money), and we hate them (their corporate governance and management styles)’ .” The ambassador said some observers saw the dispute as another chance for Russia to “take a slap at the British” at a time of frosty relations between the two countries.

Mr Dudley suggested the Kremlin wanted BP and the oligarchs to “fight each other to exhaustion, like 'Siberian tigers’ and then capture the survivor” to create a third Russian major oil company.

Elements within the AAR group allegedly threatened to hold Mr Dudley “personally liable” for spending over $4 billion (£2.4bn) “without shareholder approval”, according to the cables. Mr Dudley often returned to his apartment in the evening to find that it had been broken into by government officials, who left court papers “on his kitchen table”.

The US officials told Mr Dudley they were “concerned” about his “personal safety”.

Anthony Brenton, the British ambassador to Moscow, told the US he had heard reports of a power struggle between Mr Dudley and the then BP global chief executive, Tony Hayward. This “in-fighting” was “hampering BP’s response to AAR’s attacks”. Mr Hayward stepped down as BP’s global chief executive in the wake of the Deepwater Horizon disaster. He is now chief executive of TNK-BP in Russia. On July 25, 2008, a confidential cable from the Moscow embassy to the US State Department in Washington confirmed that Mr Dudley had left the country in the face of what one BP executive called “administrative and legal harassment” by the Russian government. Mr Dudley was facing a $900 million (£560 million) personal claim against him by AAR “for supposedly exceeding the company’s authorized capital expenditure program” and a wave of other lawsuits. BP and AAR eventually agreed a deal to resolve the dispute, in which the oligarchs gained greater influence but BP retained its 50 per cent share.

The revelations come as BP seeks to explore Russia’s Arctic for oil under an “historic” £6.3 billion deal with the state-owned firm, Rosneft.

The deal is being challenged in the High Court today by the Russian billionaires who own half of TNK-BP and are furious that the Rosneft project could undermine their competitive advantage.

A BP spokesman said TNK-BP “has not invested in” countries such as Cuba, Burma or Kurdistan but valued its work in Russia.

The spokesman added that Mr Dudley and Rosneft chairman Igor Sechin, who is Russia’s deputy prime minister, “have a strong relationship and mutual respect”.

Oligarchs drove moves to deal with rogue states

The leaked American documents link BP to several rogue states, including Cuba, Sudan and Burma. The decision to consider oil deals in these countries were driven by the oligarchs who partner BP in Russia.

However, it would be very difficult — and in certain cases illegal — for BP to carry out business in these countries.

The Burma regime is subject to a range of sanctions, after years of serious human rights abuse initiated by the ruling junta.

The US blocks trade with Cuba. However, the Russian state-controlled company Gazprom is currently exploring Cuba’s offshore reserves.

In 2008, at the time when the memo was drawn up, Sudan was also subject to sanctions after years of conflict in Darfur.

German Khan, one of the Russian billionaires, also used BP resources to explore projects in Kurdistan, the region of northern Iraq and eastern Turkey, according to one of the documents.

 

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