the RUSSIA oil & gas competitive intelligence report - Report Buyer

Russia Oil and Gas Competitive Intelligence Report 2010
Market Position
In February 2003, UK-based oil major BP and Russian financial companies Alfa Group and Access-
Renova (AAR), the owners of TNK, agreed to a US$6.35bn merger of their Russian businesses. At the
time the deal represented the single largest Western investment in post-Soviet Russia. BP later agreed to
pay a further US$1.4bn to include AAR’s 50% interest in Slavneft in the new JV. TNK-BP is governed
by a 10-member board, with representatives nominated equally by BP and AAR and decisions taken
unanimously. AAR nominates the chairman and BP the CEO.
TNK-BP’s upstream assets are chiefly located in the West Siberia and Volga-Urals. Its downstream assets
include interests in five refineries, with an installed capacity of 50mn tpa and a retail network of 1,600
sites in Russia and Ukraine. The main gas producer is the Rospan wholly owned subsidiary, which
produced 6.5bcm in the Nizhnevartovsk region in 2008.
TNK-BP has four refineries in Russia and one in Ukraine, with a total nameplate capacity of 560,000b/d.
Of these, the Lisichansk plant in Ukraine can produce Euro-4 level diesel and the Saratov refinery in
southern Russia can produce Euro-3 and Euro-4 gasoline, while the Ryazan refinery, in Central Russia,
has had the technology to produce Euro-5 diesel since 2008. The two smaller refineries are the
Krasnoleninsk and Nizhnevartovsk plants in West Siberia.
In September 2008, BP and AAR signed an MoU setting out a resolution to their six-month dispute over
control of TNK-BP, signalling a breakthrough in a complex and acrimonious power struggle.
Nonetheless, many thorny issues remain, and we expect further ructions, albeit of a less dramatic nature,
ahead. The agreement has three main components. First, it provides for a restructuring of the company’s
board, including the introduction of three new directors unconnected to either side. The second proviso
was the replacement of CEO Robert Dudley with an ‘independent’ candidate Maxim Barsky, who was
approved by the board. Third, it allows the sale of up to 20% of a subsidiary of TNK-BP through an IPO
on the international markets.
Strategy
Following Dudley’s resignation in December 2008, BP and AAR reportedly pitted their respective
nominees, Pavel Skitovich and Barsky, in a head-to-head competition for the post. In November 2009,
Barsky, who previously led independent West Siberian Resources, was named the winner. Alfa director
Mikhail Fridman, however, will be an interim CEO until 2011, while Barsky is being trained.
TNK-BP approved a US$1.8bn investment plan for 2010-2012 in February 2010. The planned upstream
spending is in line with TNK-BP's strategy of aggressively replacing its reserves each year. Of the total,
around US$1.7bn (96%) is to be spent on the two upstream projects. The first involves the full field
development and the establishment of regional infrastructure at the eastern part of the Uvat group of oil
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