Moscow Coordinates Oil and Gas Asset Transfers with BP and Chavez

Rosneft’s Kremlin-led breakthrough into German oil refining (EDM, October 19) has been accompanied by a sudden global expansion of the Russian half in the TNK-BP joint venture, again at the expense of its partner British Petroleum. Both Russian moves capitalize on BP’s financial liabilities from the Gulf of Mexico oil spill disaster and on Moscow’s special relationship with Venezuelan President Hugo Chavez. The Kremlin is now using these opportunities to coordinate a series of oil and gas asset transfers to Russia and its energy companies. 

Chavez and a BP delegation headed by the new CEO, Robert Dudley, paid back-to-back visits to Moscow during October 15-19. The Chavez visit resulted in handing over Venezuela’s 50 percent stake in Germany’s largest oil-refining conglomerate, Ruhr Oel, to Rosneft, at a deeply discounted price. BP is the other 50 percent stakeholder in Ruhr Oel and had the preemptive right to buy Venezuela’s stake, but was unable to do so. Instead, BP must sell assets to raise cash for compensating oil-spill damages in the US to the tune of $ 30 billion. 

The Kremlin, Chavez, and BP have accordingly struck several agreements in a triangular process, which Russian President Dmitry Medvedev and Prime Minister Vladimir Putin have brokered. BP is selling oil and gas production assets in Venezuela and Vietnam to the Russian side of the TNK-BP parity venture. BP has also started negotiations on selling production assets in Algeria to the same Russian shareholders.

Thus, BP has agreed to sell its stakes in the Boqueron, Petroperija, PetroMonagas, and Desarrollo Zulia Occidental (DZO) projects in Venezuela, as well as a vertically integrated operation in Vietnam (two offshore gas fields, pipeline, power-generating plant), for an aggregate sum of $ 1.8 billion. 

In addition, BP is negotiating the price of its stakes in Algerian projects for sale to its Russian partners. Those projects include the Rhourde El Baguel oilfield (rated as Algeria’s second most prolific) and the Salah, Amenas, and Bourarhet gas projects (all in southern Sahara) (Interfax, October 18; Financial Times, October 19). 

The buyers are Alfa-Access/Renova (AAR), a consortium headed by four Russian billionaires (Mikhail Fridman, Viktor Vekselberg, Leonard Blavatnik, German Khan) who jointly hold the Russian 50 percent in the TNK-BP joint venture. According to TNK-BP executive president Fridman, these transactions signify the company’s "expansion into global energy markets."  During the Chavez visit, the Energy Ministries of Russia and Venezuela signed a memorandum of understanding on support for the transfer of BP’s assets in that country to these new owners (Interfax, October 15, 19). 

In parallel with the asset transfers, Russia and Venezuela signed agreements of intent to create joint ventures with AvtoVaz (for car assembly), Novoship (oil shipping), and Inter RAO UES (for gas-powered turbines) in Venezuela (Itar-Tass, October 18). The Kremlin typically coordinates such package deals, giving Russian companies an edge over competitors for access to energy resources. Moreover, Putin underscored Chavez’s role in "opening Russia’s access to Germany, that is the EU," in the oil sector through Rosneft. 

Arms deliveries are a further incentive, massively in Venezuela’s case. On this occasion, Putin informed Chavez that Russia will shortly deliver an additional arms consignment, including a batch of 35 tanks, in line with orders placed and partially pre-paid by Venezuela. The latter has completed a plant to manufacture Kalashnikov guns in the country and is now building a plant for Kalashnikov spare parts and ammunition, according to Chavez. The Venezuelan president now requested S-300 surface-to-air missiles from Russia, eyeing the units that Moscow had earlier earmarked for Iran. According to Russian estimates, Chavez purchased slightly more than $ 3 billion worth of Russian arms during 2003-2009, and has placed orders worth $ 3.4 billion in Russian arms for the period 2010-2013. While in Moscow, Chavez praised Medvedev for promoting the bilateral relationship, including arms deliveries, "with the same resolve" as Putin had done during his presidency (Interfax, October 15, 18).

Moscow regards the asset transfers just agreed with BP and Chavez as a complex form of cross-investment, the favored means to create long-term dependencies. Meanwhile, BP’s own experience in Russia illustrates the risks of such dependencies. 

BP had reconstituted its Russian joint venture, TNK-BP, in 2003 despite the abuse suffered earlier from its Russian partners. Those partners, the Russian authorities, and Gazprom combined to force the Kovykta project to a standstill and ultimately to insolvency. They sought to pressure BP into ceding stakes to Russian companies in some BP flagship assets, such as the liquefied natural gas operation in Trinidad & Tobago, or Ruhr Oel (the latter goal now accomplished).  In 2008, BP’s Russian partners and Russian police used crude forms of harassment to force changes on TNK-BP’s board and replace its CEO at that time, Robert Dudley.  They forced him first underground and then out of the country. It now befalls him to negotiate asset transfers with Moscow and some of the same partners, this time as BP’s new CEO, with a daunting legacy from the preceding top management of the company.