This is source I found from another site, main source you can find in last paragraph
TWO years after a calamitous oil spill in the Gulf of Mexico, BP has another blowout on its hands. This one is wholly man-made. It concerns an explosive quarrel between the British oil giant and its partners in TNK-BP, Russia's third-biggest oil firm, which is owned equally by BP and AAR, a consortium controlled by three billionaires.Change of track
TNK-BP is hugely profitable (see chart); last year it paid dividends of over $7 billion. Yet on June 1st BP said it would consider selling its stake in TNK-BP. Whether and how it does so will have consequences for BP, its oligarch partners and Russia's energy industry.
Their interests are entwined but in conflict—as has been the case ever since TNK-BP was launched in 2003. It combined BP's Russian oil assets with those of AAR, which owned wells in Siberia and Ukraine. BP invested $8 billion, the biggest foreign investment ever in Russia.
For BP, the deal seemed to make obvious sense. It became the first foreign firm to secure fat Russian oil reserves, at a time when it wanted to make up for declining production in Alaska and Britain's North Sea. For its oligarch partners, Mikhail Fridman (whose Alfa Group Consortium owns half of AAR), Len Blavatnik and Viktor Vekselberg (whose Access Industries and Renova Group each own a quarter), the benefits were less clear.
BP provided AAR with access to Western technology, which it needed, especially to improve oil recovery at its giant Samotlor oilfield, Russia's biggest, where production had long been dwindling. Allying with a big multinational company also promised to shield Messrs Fridman, Blavatnik and Vekselberg from possible interference by the Kremlin. Under President Vladimir Putin, that is no small consideration. The month after the TNK-BP deal was announced, Mikhail Khodorkovsky, the boss of Yukos, a big Russian oil firm, was arrested. His firm was broken up and its assets were sold to Rosneft, a state-owned oil firm.
Yet bedding down with BP also entailed a loss of control for the oligarchs. BP refused to take less than a 50% stake in the new entity, which is the maximum Russia's foreign-investment laws allow.
TNK-BP has been spectacularly successful. It has increased production from longstanding AAR projects by up to 40%. And it has showered its shareholders with money. In the past nine years BP has taken $19 billion from the company in dividends. TNK-BP also represents 29% of BP's oil-and-gas production, 27% of its reserves and, on average, 10% of its income. Partly to meet the mounting costs of the Gulf of Mexico spill, BP has resolved to raise $38 billion by selling assets. (It has so far raised $23 billion.) Yet its stake in TNK-BP was never in the shop-window.
Its partnership with AAR started creaking in 2007. AAR claimed BP was blocking its ambitions for TNK-BP, including by resisting its attempts to expand it outside Russia. (BP denies this, and points to its sale of assets to TNK-BP in Venezuela and Vietnam.) The row worsened when BP started negotiating with Gazprom, another Russian state-owned energy firm, to launch a bigger partnership. Mr Fridman, who suspected BP wanted to change partners, claimed the terms of TNK-BP's confidential shareholder agreement gave TNK-BP first dibs on any new BP venture in Russia.
The dispute got ugly. Gazprom withdrew from the talks. TNK-BP's boss, Bob Dudley—who is now BP's chief executive—was denied a new Russian visa, fled Russia and went into hiding. A truce was called, leading to a new shareholder agreement. This involved adding three independent directors to TNK-BP's board, including a former German chancellor, Gerhard Schröder. Yet battle was resumed last year, after BP announced that it had formed another Russian joint venture, this time with Rosneft, to explore Russia's Arctic Kara and Black seas.
For BP, this was a coup—symbolic of its effort to rebuild after the oil-spill. For Rosneft, it promised to legitimise its swallowing of assets expropriated from Yukos. But Mr Fridman said nyet. “If you want to marry a new wife,” he said, “you have to divorce the old one first.”
Depending on whom you believe, this represented hubris on the part of Mr Dudley or slipperiness by AAR. Either Mr Dudley had wrongly counted on the Kremlin's support for any deal involving Rosneft; or AAR had turned against a deal it had previously acquiesced to. AAR's CEO, Stan Polovets, is naturally in the former camp: “The British lecture about the sanctity of contracts,” he tuts. “For BP to flout it was not something we expected.”Fridman frowns on bigamy
Either way, it was a foul-up. AAR got a Swedish tribunal to halt BP's deal with Rosneft. BP then tried to buy out AAR's stake in TNK-BP, for $32 billion (which would have included awarding 8% of BP's shares to Mr Fridman). It was assumed, given the foreign-investment rule, that BP would have swiftly flipped that stake to Rosneft. Yet that deal also fell through, for which each side blames the other, leading to the collapse of the BP-Rosneft tie-up. Rosneft instead switched to ExxonMobil; they finalised a deal in April.
TNK-BP has since become ungovernable. AAR is suing BP for $13 billion over last year's marital strife. Two of TNK-BP's independent directors, including Mr Schröder, have resigned. The board now cannot raise a quorum; it therefore paid no dividend in the first quarter of this year. On May 28th Mr Fridman said he would stand down as TNK-BP's chief executive, piling more pressure on BP, even as its share price is trading 40% below its pre-spill level. BP's vow to sell was its riposte. Again, depending on whom you believe, this is either another humiliation—a concession of one of BP's most profitable assets—or an act of brilliance, turning the tables on Mr Fridman.
There are three ways this could play out. Most obviously, BP could go ahead and sell its stake. AAR says it is planning to bid for it. There is speculation that it has a right of first refusal on BP's share and, further, that any disclosure of TNK-BP's confidential accounts would transgress its agreement with BP, making a sale to an outside party impossible. AAR's opponents say this is incorrect, on both counts. The opponents also question whether AAR could raise the necessary money—valuations of BP's stake range between $18 billion and $35 billion—or indeed whether it would want to.
It is easier to imagine BP selling to one of Russia's big state-owned energy firms: Gazprom, Rosneft or a holding company that owns 75% of its shares, Rosneftegaz. This would be consistent with what some Kremlinologists are predicting: that Mr Putin, who was inaugurated once more as president last month, means to reassert his sway over Russia's energy industry.
As proof, they cite the May 22nd appointment as president of Rosneft of Igor Sechin, a Putin loyalist and an arch-proponent of state control over energy. Some say Mr Sechin has it in for BP; others that he has it in for Mr Fridman. He was certainly maddened by BP's aborted tango with Rosneft, as deputy prime minister with responsibility for energy at the time. At the least, he would make an uncomfortable partner for AAR.Dudley yearns for divorce
How much BP could collect for its stake from Rosneft or another state-owned outfit is a tricky question. But if paid well, it could reasonably claim to be conducting a rare retreat from Russia in triumph. Many BP shareholders think the TNK-BP venture too risky, despite the gusher of profits it has already generated. BP's share price rose by 4% after the company said it might sell out. Provided BP spent its windfall wisely—perhaps acquiring a well or two off Africa's coastline, where it has missed out on big recent discoveries—its shareholders would probably be happy.
Of the remaining two scenarios, one, that the status quo will endure, looks unlikely: there is too much ill-will. The final possibility is that BP can resurrect its previous plan, and buy out AAR, probably as part of a wider tie-up with Rosneft or perhaps Gazprom. The rationale for such a tie-up remains strong. Russia is hungry for foreign technical expertise, especially in the Arctic. It would also be the best outcome for BP. But this saga is far from over, and no one can predict the ending.
This is source I found from another site, main source you can find in last paragraph
Source : http://www.economist.com/node/21556629