BP Tries to Heal Rift With Russians

Lord Browne, the chief executive of BP, admitted yesterday that a past bust-up between his company and his new Russian co-investors in TNK-BP had left a residue of distrust between the two sides.

The British oil boss said there was less "suspicion" than there had been before but he had still apparently asked them whether they would just "take the money and run" if he went ahead - as he did - with a $7bn (£4.2bn) takeover.

The highly charged atmosphere between the two sides was revealed publicly for the first time as Lord Browne shared a platform with the three key Russian partners, from Alfa, Access and Renova (AAR) as they outlined plans for their 50:50 joint venture, TNK-BP, at a special briefing in London.

These new insights will do little to encourage optimism among investors, who have been subdued in their reaction to BP making the biggest ever single foreign investment in Russia.

The country is seen as a brave new frontier attracting all the major oil companies but the recent arrest of oligarchs at Yukos and elsewhere has unnerved people. There are fears in the City, too, about whether BP will be able to impose its own standards of corporate governance, safety and financial discipline in Russia, dubbed the Wild East.

Lord Browne clashed with the AAR team five years ago when he alleged they had illegally appropriated assets belonging to Sidanco, the first Russian firm BP invested in.

The BP boss won by using all the political muscle he could find - including Tony Blair - to put pressure on the Russians through the offices of the country's president, Vladimir Putin.

"We have built a strong relationship tested by past difficulties, notably over Sidanco. We continue to build trust and less and less view each other's motives with suspicion," said Lord Browne.

Len Blavatnik, chairman of Access Industries, said he was glad to have been able to convince Lord Browne that he and his colleagues were going to stick around, though there is a lock-in at least until 2007. "There is no reason for us to run. There is more reason for us to stay and make more money," Mr Blavatnik said.

The Access boss admitted the general political and economic environment was still "somewhat unstable", while his Russian colleague Viktor Vekselberg, chairman of Renova, hoped there were "no catastrophic surprises waiting round the next corner".

The recent wave of arrests of high-ranking figures in Yukos was described by the third Russian partner, Mikhail Fridman, chairman of Alfa and now TNK-BP, as "not very useful" for the investment climate.

But Lord Browne expressed confidence that TNK-BP would not get dragged into the political struggles with Mr Putin which are believed to be responsible for the turbulence. "TNK-BP is not engaged in partisan politics and has no intention to be," the BP chief executive said.

There was a risk in doing business anywhere - be it the Middle East, Nigeria or Russia, where "great strides of reform" had taken place over the past 18 years, he said.

BP believed that TNK-BP could have reserves of 9.4bn barrels, based on Society of Petroleum Engineers criteria, which was more than double the 4.1m reported under US securities and exchange commission rules.

Production will grow by up to 14% between 2002 and 2003, 7% the following year but average 5% thereafter. The acquisition would be accretive to earnings with oil prices over $16 per barrel but help the critical return on capital employed only at $20.

BP admitted it might take 10 years to lift TNK to BP standards on issues such as the environment.