RUSSIAN OIL: Is another BP deal going to end in tears?

The Rosneft takeover is ominous in almost every sense

Allegedly, everyone’s a winner in BP’s Russian deal. But thousands of investors in Rosneft, BP and Russia have their doubts. While the deal is undoubtedly great for the politicians, billionaires and oil men, the background clouds are ominous. Instead of divesting assets and withdrawing from direct participation in the economy, since Putin returned to full power, the Russian State is taking back control.

Bloomberg said this ‘comes as a relief for the embattled BP management’. I’m not sure about that. BP’s desperate liabilities position (thanks to Obamite hysteria in the US) has led it, in my opinion, to take silly risks in the last two years. This may be not so much relief as the thin end of the wedge.

BP’s (BP.LN) deal to sell its half of the TNK-BP Ltd. (TNBP.RS) joint venture to Russian state-owned giant OAO Rosneft (ROSN.RS) for around $27 billion in cash and shares will benefit BP’s creditworthiness, Moody’s said Tuesday. But the ratings agency said the sale didn’t warrant a change to how it grades BP’s debt. It just called the sale “credit positive”.

Further – as BP itself is quick to point out – although the company will get a whopping cash payout for TNK-BP, the proceeds from the Rosneft deal must be balanced against it no longer receiving the stream of dividend payments from TNK-BP, which was a major source of BP cash flow.

It’s the Kremlin’s intentions I find potentially less than honourable. Andrei Belousov, the Russian economy minister, insisted that the purchase of 100% of oil company TNK-BP by state company Rosneft did not mean the government was rethinking its commitment to rolling back state ownership of the economy. He just wasn’t very convincing.

Answering one hack’s question yesterday as to whether the government would still consider privatising Rosneft, he said, “There remains the possibility”. This didn’t exactly offer up fond memories of Thatcher.

We have to take this beyond the business context, and deep into geopolitical energy territory. Vladimir Putin is an ex-KGB agent and macho believer in the destiny of what was the Soviet Union. He simply doesn’t want the control of the country’s most valuable bargaining tool in the hands of mafiosas. In recent months, we have watched as – with growing speed – instability on the Eastern Med/Middle East axis has become the abiding obsession of every major power on the planet.

The days when the Soviet army could casually walk in and out of satellite countries have gone. Today, the control of cyber and energy resources is the big game in town: Rasputin won’t be privatising either of those soon.

I have been arguing consistently for two years now that anyone investing in Russia at any level – shares, futures, energy or property – needs their head examined. The place is a cross between the Wild West, 1930s Chicago, and 1960s Czechoslovakia. It is run by a megalomaniac. And it is massively overdependent on a fossil fuel which, technologically, is probably nearing the end of its energy hegemony.

So while BP may be relieved to have a lot of cash back, it still has a large interest in a sphere of influence where anything could happen – and probably will. Plus, of course, a big question remains for the Oilspiller General: whadda we do now?

Many are the unintended consequences of a vain American President looking for cheap popularity. We have just eleven days to find out whether he’ll be at it for another four years.

Today’s word thought: Soviet is a collective noun


16 thoughts on “RUSSIAN OIL: Is another BP deal going to end in tears?

  1. As you say, Putin wants to keep control. And if you consider what happened to Russian industry and state assets under Western tutelage, who can blame him? The whole state structure was pillaged by those robber barons we now call oligarchs, the currency ruined, such state benefits as the people enjoyed snatched away.

    If I were an average Russian, I think I would be quite pleased to see the occasional oligarch ending up in the slammer. I think Putin is more or less in the position of Henry VII, keeping a strong hand on overmighty noblemen – the sort the Russians used to call Boyars. Neither would I have any trust in the good intentions of Western powers, bringing up their missiles close to the borders and working to destabilise sympathetic regimes in the “near abroad”.

    Putin has to play the cards he has.

    Incidentally, I usually watch RT news in the evening as a counterweight to the BBC’s agenda-driven output which I get on the Today programme in the morning.


  2. Pingback: John Ward – Russion Oil : Is Another BP Deal Going To End In Tears? – 25 October 2012 | Lucas 2012 Infos

  3. “probably nearing the end of its energy hegemony” – I guess this depends on your view of what “near” means. And when it comes to powering a military machine, there really is no alternative……Putin is behaving rationally.


  4. Hang on John, Are you saying BP are blameless in the Deepwater incident? Were they also blameless in the Texas Refinery incident too? They were the operator of the well, they chose their subcontractors, so they have to take ultimate responsibility for what happened surely?

    If they didn’t have such a track record of screwing up stateside I’d maybe take a more forgiving view, but they just seem to not learn from their own mistakes. I also seem to recall that their initial estimates of how much oil was leaking from the well were far too low. So presumably the initial response to the leak was not sufficient and the gulf suffered more pollution than was needed.

    A poor show all round by BP from what I recall of events.


  5. Listeria
    What I mean is, sooner rather than later someone will make solar work on a grander scale…and then oli is dead in the water. That’s a mixed metaphor, but as you know oil and water don’t mix.


  6. During the US “far west” era, many people took the risk, cos the potential was huge. Some perished, some became millionaires overnight.
    A far west period in new lands/environments became a part of the evolved capitalist system. After the “cake” distribution, rule of law is established, by those who got a piece of the pie, and things move on to next level.


  7. Angonangonangoorrrn Squire
    Type BP into the site’s search engine, and you’ll see I can’t stand the company. But Obama played the anti-Limey card by persistently referring to it as British Petroleum, tho he knew it hasn’t been British for years.


  8. Did not the Kuwaiti’s buy up a goodly portion of BP in Thatchers 80’s when it needed liquidity (or was it the government’s need for cash? my memory fails me) and then several short years later were not the Kuwaiti’s lent on by the UK Government to sell that stake back to presumably more suitable UK interests at just a ‘rentier’s’ profit?


  9. O/T: But watching the latest Kieser report on RT this morning, I found the discussion on Gold (and Germen holdings at the BoE) pretty interesting, alongside other bits and pieces.

    Worth a watch if you have a spare 1/2 hour.


  10. Good god, why would anyone watch that ghastly, wretching Today programme with its stupid, fluffy, vacuous lefty presenters made even worse now it has moved north of the M25, Nothing could be better designed to ruin the day.


  11. I also listen to RT and am glad its there to give an alternative view to the conventional pablum. What i find heartening is that it has higher viewer figures than CNN in the more sophisticated US areas of New York city and Washington DC.


  12. The biggest complaint I see on various comment forums is that it is a pure propaganda machine funded by the .Kremlin.

    While RT may receive $300m from the state, let’s not forget Aunty receives $800m from UK government directly, and if you include the TV tax (sorry licence fee) it’s over $6.6bn!!

    Interesting fact:

    One of the first things the Argentinians did when they invaded the Falklands was to give everyone a brand new TV (pre-tuned to Canal 7 no doubt)


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