Posted on November 5, 2011 - by Venik

BP’s bid to clean up its act dealt blow by revelations in Russia case

Court documents show the oil giant appeared to regard its partners in a major deal as criminals

BP’s attempt to rebuild its public image after the worst oil spill in US history has been dealt a blow by court documents showing it was willing to do a major deal with Russian billionaires that it regarded as “crooks and thugs” to gain access to the country’s vast oil wealth.

The damaging allegations have come to light at a critical time for BP, which faces a criminal investigation by the US justice department while preparing to fight a massive legal case in New Orleans over the Gulf of Mexico oil spill.

North American rival Norex Petroleum is seeking $1bn damages in its case at the New York supreme court as it argues that BP and its Russian business partner, TNK, have benefited from oil assets that were seized in the late 1990s. Russia is important to BP, where its joint venture TNK-BP produces a quarter of its oil.

At the heart of the dispute is the alleged misappropriation of the Yugraneft oil field in Siberia, which Norex claims has generated $1bn in oil revenues in the last decade.

In 2003 BP announced a $6.75bn (£4.2bn) deal to acquire a 50% holding in Tyumen Oil – TNK – which was backed by the Alfa Access Renova (AAR), a consortium controlled by four of the country’s richest businessmen, Mikhail Fridman, German Khan, Leonard Blavatnik and Viktor Vekselberg.

A BP internal briefing, obtained by Norex and published through the New York court procedure, says: “Sources close to TNK believe [that the] local oil industry [has] been infested with criminal elements long before Alfa took over TNK.”

BP itself suffered losses when the Yugraneft field was taken over by TNK and another confidential memo, dated 9 September 1999, and also revealed in the court papers, described the tension: “[Former TNK chief executive, Simon] Kukes noted… TNK was purportedly characterised by BP Amoco as ‘crooks and thugs’.”

Russia’s image as a place for foreign companies to do business has been tainted by various high-profile court actions. The current Russian president, Dmitry Medvedev, has repeatedly expressed his concern at the levels of corruption inside his country, while a new book by the Guardian reporter Luke Harding, called Mafia State, has laid bare the wider political problems of the country.

At present Chelsea FC owner Roman Abramovich is battling his former friend Boris Berezovsky, the Kremlin critic and political exile, at the high court in London. Berezovsky is suing Abramovich for more than $5bn in the world’s biggest private litigation case. The two men both benefited from an infamous privatisation programme under President Yeltsin, where state oil and other groups were all but given away to a small group of oligarchs.

Berezovsky claims that Abramovich betrayed him after he fell out with the Kremlin in 2000 and fled to Britain. He says the Chelsea owner took advantage of his political difficulties with Vladimir Putin, forcing him to sell his interests in Russian oil company Sibneft at a knockdown price. Berezovsky also says Abramovich cheated him in another deal with the Russian aluminium firm Rusal.

When BP formally teamed up with TNK, it asked for a clause to be written into the contract that would remove it from any liability in the event of a successful action by Norex. The Canadian company believes this is a “smoking gun”, as it says it shows BP realised that the Yugraneft field could resurface as an issue. Norex chairman Alex Rotzang said BP made a “deal with the devil” by striking the TNK deal in 2003.

An official spokesman for AAR declined to comment on the affair, while BP argued that there was “no merit” in the Norex suit and said it had moved to have it dismissed.

“The allegations made by Norex all involve conduct that pre-dates the formation of TNK-BP and had nothing to do with BP,” said a spokesman from the oil company’s London head office. He went on to rubbish the idea of a “smoking gun” and that the special clause was “to protect itself against exactly the kind of meritless claims Norex is bringing”..

Privately BP executives dismissed the Norex documents as old material and pointed to previous failed attempts to bring legal action in the US against TNK as proof of their lack of merit.

But BP will not welcome any further legal action or bad publicity at a time when its share price is still badly dented from the Macondo well blowout.

The British company has been working hard over the last 18 months to try to repair a reputation sullied by the Deepwater Explorer accident but also erase memories of the Texas City fire and pollution problems in Alaska which have forced out early two of the company’s three previous chief executives.

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