Monday 31 January 2011

BP: Dancing with the Bear is fraught with danger

BP has found out today that it's much praised deal to get into bed with Rosneft has severely weakened its position in Russia.

The current TNK-BP Oligarchs are not keen on stopping BP issuing a dividend to shareholders with their money. They are not very happy about BP getting into bed with Prime Minister Putin's state champion, Rosneft.

Nor would they be, as Russia has a strange set of company laws that are routinely ignored by the Government when it suits. Even President Medvedev was accosted by a brave English Investor at Davos last week. Russia cannot escape this reputation as it is well earned. Abroad, Russian companies act strategically but not comercially, see Gazprom in the UK as a great example.

Indeed, BP must have thought about what it was doing when it took a 5% share investment from Rosneft, but the future will now be shrouded with a long road ahead of political intrigue and deal doing ahead. BP will argue this is the price to pay for getting access to the new North Sea in Russia's Arctic. It does not do much for their shareholders in the short-term. Already smashed by the accident in the Gulf of Mexico the answer has been to start dancing with the Bear.

This never ends well for the foreign companies involved; it does not encourage me to buy any shares in BP.


Nick Drew said...

strategically but not commercially

Gazprom are simply buying market share

this subtle strategy has been adopted by each and every new entrant to the UK gas market since it began

(in Gazprom's case, made easier by not marking-to-market their portfolio, or indeed publishing any meaningful accounts at all)

sometimes there is a free lunch ! & if I was an industrial gas buyer, I'd take their gas too - it's the same as anyone elses

James Higham said...

It's difficult to explain the Russian trading mindset. It has nothing to do with we'll offer this to get that. It's all "get that".

I was in a position to see this at first hand and the most celebrated case [from 1998] made it into Time. The idea is to go along with the western country long enough to milk the expertise and then to discover some hitherto long lost law which prohibited the foreigner trading on Russian soil.

This is called "arranging a problem" and the "solution" costs the foreigner big.