BP and Russia

In an insightful column in the Moscow Times today, Matthew Hulbert takes a look at the recent BP reshuffle and how it might play out on the Russian market. Here’s an excerpt:

 [I]f BP is to survive, it must surely look beyond the United States, where it will struggle to maintain concessions, let alone secure new contracts. It must look toward the markets of tomorrow. This, of course, raises a thorny question: Is [Robert] Dudley, who was raised in Mississippi, the right man to navigate global markets in jurisdictions such as Libya, Colombia, Angola and Algeria, or merely the guy who knows how to sweet-talk the White House into taking its foot off BP’s neck?

Russia might well provide an answer here. Before being shipped back to the United States, Dudley had been walking a tightrope to ensure that BP remained part of the TNK-BP equation. Many in Moscow thought that Gazprom would be a better partner than TNK-BP to develop Kovykta, one of the country’s largest undeveloped natural gas fields in East Siberia.

Hayward understood this, which explains why his first plane out fromhis congressional grilling was not back to London but to a far moreimportant meeting with Deputy Prime Minister Igor Sechin to affirm BP’sRussia position. It is precisely these markets where BP’s futurefortunes rest. In addition, BP has important interests in Azerbaijanand Georgia, where BP operates the Baku-Tbilisi-Ceyhan pipeline…

…No doubt Dudley thinks that if he takes over BP, his main risk isthat the leaking well in the Gulf of Mexico will continue to leak. Buthis real problem is whether some of the low-hanging fruit in Russia,Central Asia or in the United States decide to turn the contractualtables on BP. The market has already priced in BP’s U.S. write-off, butit has not thought about the potential of BP’s global empire crumblingbefore Dudley’s U.S.-centric eyes.

The temptation for Russia to bite into the contract renegotiationapples is no doubt immense. A gas dispute with Belarus and a shakyCollective Security Treaty Organization following the recent regimechange in Kyrgyzstan have left the Kremlin bruised. Hanging BP out todry could well be seen as a quick and easy political ointment forMoscow to apply. But this is a bad time to be playing fast and loosewith upstream hydrocarbon provision. Oil markets remain very lax, witha slack of more than 6 million barrels per day from OPEC supply alone.International oil companies such as BP have also been given a secondlife in the form of shale gas discoveries in the United States, Europeand Asia. Access to reserves is no longer the sacrosanct prize thatstates had previously sought. Consistent investment to bring resourcesonline is, however.

If Russia helps put pressure on BP, the company could well be subjectto an outright takeover bid. ExxonMobil would no doubt be thefront-runner. But Moscow surely understands two key factors also inplay: The first is that in a globalized market, China has the deepestpockets of all to launch a credible BP bid. The second is that money isthe only thing that matters in London. BP assets might not go to the”vulture of choice.”