The CEO of BP‘s (NYSE:BP) Russian subsidiary TNK-BP Mikhail Fridman resigned from his post on Monday.  The resignation has been taken as a sign of continuing corporate governance issues in the Russian Joined Venture (JV) between BP and its local partners. More significantly, the tiff also comes a at a time when the Russian government is looking to open its vast Arctic reserves to private players based in the country such as TNK-BP. Last year, issues within the subsidiary, forced BP to abandon a partnership with state player Rosneft to explore blocks in the Arctic. BP however has looked to downplay the issue saying that the resignation was for personal reasons and that the development would not have an impact on TNK-BP’s day to day operations.
We have a $57.72 price estimate for BP, which is at a 50% premium to its current market price.
Despite the frequent confrontations between BP and its Russian partners, TNK-BP accounts for about 40% of the company’s global oil output. (See: BP Gets Another Shot At Arctic Reserves Through Russian Subsidiary) The company is also a major source of cash profits for BP, which has seen its overall output fall since the Macondo spill because of natural aging of fields and asset sales. BP’s troubles with its Russian subsidiary took a turn for the worse when BP bypassed the joined venture to directly signe an agreement with Rosneft to explore blocks in the Arctic. TNK-BP’s Russian partners struck back, suing BP and obtaining an injunction to block the agreement as they claimed that the deal with Rosneft violated BP’s existing agreement with them.  The partners have since then claimed that BP has been blocking the filling up of vacancies on the JV’s board, to prevent a vote on whether TNK-BP should sue BP separately over the episode, claiming up to $10 billion in damages.
TNK-BP’s Russian partners have also claimed that Mr. Fridman’s resignation was because of issues in tackling the board, which disrupted the company’s operations.  The lack of unity on the part of the board has also affected TNK-BP’s $3.75 billion dividend payout for the last quarter. BP’s troubled relations with its subsidiary could have a major impact on its plans to expand operation in Russia over the long term. With the country on the verge of allowing private players to explore the Arctic region for oil and gas, BP’s troubles could end up being a major hindrance in seizing the opportunity. The successful exploration of reserves in the Arctic could result in a significant increase in the company’s overall output.Notes: