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By John Helmer in Moscow

Russians go to court for to oust CEO Dudley.

In the middle of 17th century Paris, Savinien Cyrano de Bergerac (that’s the real one, not the 19th century stage character), wrote a fantasy about a voyage to the moon.

To get there, he describes several contrivances, in addition to his own. One, which reportedly delivered the biblical prophet Elijah, involved a large magnetic ball and an iron chariot. To propel the latter into the sky, and thence to the orbit of the moon, the prophet tossed the ball into the air, so that magnetic force would draw the chariot after it. He was obliged to keep catching and tossing to sustain the upward momentum. When it was within gravitational range of the moon, the magnetic ball was tossed downward, and then upward again, in order to break the speed of the chariot’s fall.

Russia isn’t the moon, but to hang on to the 23% of its global oil reserves located there, BP (ticker BP:US) has been trying a variant of the magnetic-ball-and-chariot. Rarely has so much value in global energy resource depended on such a theory of motion. Robert Dudley, chief executive of TNK-BP (TNBP:RU) and flag-waver for BP’s interests in Russia, has also been using several quaint contrivances to defy the laws of gravity. According to his announcement on Friday, he has secured a 10-day visa from the Russian immigration authority. The time has been allowed, 24 hours before his current visa would have expired, in order for him to prove that he has a valid employment contract to warrant legal issuance of a new visa. The Russian shareholders of TNK-BP, led by Mikhail Fridman of Alfa and Victor Vekselberg of Renova, claim Dudley should be replaced by a new chief executive. They have also told the visa authority that his contract is invalid.

The legal argumentation around Dudley’s visa was intensified by the filing of a lawsuit in a Moscow court this week, in which the plaintiffs – 16 TNK-BP executives, all Russians — asked for Dudley’s dismissal from his job, and the revocation of his residential status, on the ground that he has been discriminating against Russians in TNK-BP’s employment practices.

Dudley denies the charge. He also argues that his contract has not been terminated, because the Russian shareholders on the TNK-BP board lack the majority to out-vote BP’s support of him. He has announced that the new lawsuit to revoke the contract is “a new low in the tactics being used in the shareholder dispute polarizing the organisation in a cynical and destructive way.” Alastair Graham, head of BP Russian Investments, also speaks gravitationally of a “new low”. According to Graham, the campaign against Dudley is “a smokescreen for [the Russian] attempts to seize control of TNK-BP.”

The trajectory of TNK-BP’s share has been rising, but not from Dudley’s magnetic pull. So long as the Moscow market judges that Fridman and Vekselberg stand the better chance of winning the contest for operational control of the company, TNK-BP becomes more valuable. That is to say, the Russian investment community believes TNK-BP – current market cap of $33 billion, the fourth largest of Russia’s oil producers – will be worth more if BP is ousted than if it remains. TNK-BP is currently trading at just over $2 per share, closer to the year high of $2.38 than the year low of $1.52. TNK-BP’s share didn’t start falling until the start of this month. That’s when BP launched a lawsuit in the High Court in London.

By contrast, and for global, as well as Russian reasons, the international market has driven BP’s share price steadily downwards since May. The London lawsuit hasn’t helped break the fall.

Supporting Dudley against the Russian demand for his ouster – if he were to depart, so would the chief operating officer and the chief financial officer – remains BP’s position. At the last board meeting – convened in Cyprus on July 11 – BP moved for the dismissal of TNK-BP’s Russian security chief and legal counsel, together with German Khan, the company’s executive director; Khan is one of the Alfa shareholders. The motion was blocked by the Russian shareholders. Their motion to remove Dudley was blocked by BP. Dudley has also survived a July 7 board vote to oust him. His standing has become the magnet polarizing both sides.

BP headquarters staff have been reluctant to provide details of the June 30 London lawsuit against the Russian shareholders, and several days had elapsed before BP’s shareholders were informed that for at least fifteen months, their company had a legal claim to Rb8.5 billion (US$366 million), payable by the Russian shareholders of TNK-BP.

At Mineweb’s request, BP has produced a copy of the Short Claim filed by Linklaters at the High Court on June 30. It is captioned BP Russian Investments Ltd., versus Alfa Petroleum Holdings Ltd. and OGIP Ventures Ltd, both of London. BP declines to say if it has served the claim on the

Defendants, nor whether it has filed in court the fuller Particulars of Claim. The amount of the claim, including the court filing fee but not legal costs and interest, is “the US dollar equivalent of Roubles 8,462,102,278.92.”Michael Bennett is the Linklaters solicitor who signed the claim on BP’s behalf.

In a single page, however, BP and its lawyer have revealed details of its relationship with TNK-BP and the Russian shareholders on the board, which BP shareholders have not been alerted to before – and which BP may wish it had not exposed at all.

The legal basis of the claim is that in 2003, when BP acquired a 50% share of Tyumen Oil Company (TNK) — then owned by Fridman, Vekselberg and Len Blavatnik, through holdings that combine in the acronym AAR – the Russian shareholders signed an agreement to indemnify BP in the event that the Russian government, prosecutors, or tax agency filed claims against TNK for the period prior to BP’s deal. BP officials were reluctant at the time, and subsequently, to admit to the existence of this and related indemnities. Two good reasons: BP did not want a public demonstration of how little it trusted its new Russian partners in TNK-BP. Nor would it acknowledge how probable it thought TNK was liable for heavy back-tax claims from the Russian government.

Clause 4 of what is called the Tax Deed of Covenant, dated August 29, 2003, is now identified as the operative provision by which BP is now demanding the money it says was paid out of its share of TNK-BP’s profit in either 2006 or 2007. The Claim Form doesn’t provide details of the tax levies on TNK-BP. Asked what these were, BP spokesman David Nicholas referred to BP’s annual report for 2006.

This says that on October 23, 2006, tax audits of TNK-BP group companies for 2002 and 2003 resulted in “a payment by TNK-BP of approximately $1.4 billion in settlement of those claims.” There is no reference to how much of this amount was paid out of BP’s share of TNK-BP monies, and thus subject to repayment by TNK-BP to BP. All BP admitted to its shareholders was that “at the present time, BP believes that its provisions are adequate for its share of any liabilities arising from these and other outstanding tax decisions not covered by the indemnities provided by our co-venturers…”

This language appears to refer to tax liabilities BP might have to pay the Russian authorities, after the 2003 transaction was completed. It omits to disclose to shareholders that BP and TNK-BP had apparently agreed at the board of directors, and with CEO Dudley, that no money, out of the $1.4 billion tax paid in 2006, would be owing to BP.

BP refuses to explain why it has apparently changed its mind – and so recently. Nicholas told Mineweb: “We consider the correspondence and between BP and the defendants and the contents of this correspondence to be confidential. We have filed our claim with the High Court and you now have a copy of the claim form. The details of this claim will be fully examined when the case comes to court. We don’t intend to make further comment on it.”

The Claim Form reveals that BP’s first letter of demand for payment was sent to the Russian shareholders on March 19, 2007. But the amount claimed in that letter by BP is reported in the court document to have been Rb3.4 billion. Further letters of demand followed, BP says, on August 1, December 24, and May 9, 2008. BP then makes an unusual admission: on May 22, BP received a letter from the defendants, the Russian shareholders of TNK, in which they acknowledged “that each Defendant was liable to pay 50% of Roubles 1,835,147,027.73 in respect of the sum of Roubles 3,402,745,865.00 claimed by the Claimant in the aforesaid letter dated 19 March 2007”.

Reading that carefully again, BP admits that in its letter-writing campaign from March of 2007 to May of 2008, its demand was for Rb3.4 billion (about $147 million at today’s exchange rate); and that the Russian shareholders had agreed to pay it all.

Notwithstanding, just 38 days after receiving this payment undertaking, BP filed suit for an amount that is exactly two and a half times larger. BP was asked to explain why it sued so soon after the Russians agreed to pay on May 22; and why the amount of the claim had jumped skyward. Spokesman Nicholas refused to say.

Can there have been an agreement in 2006 between the BP and Russians on the board and in the senior management of TNK-BP not to reimburse BP, and not to invoke the indemnities? Then, through 2007, when BP despatching its letter claims, was there an understanding with the Russians that they would be obliged to reimburse BP for considerably less than BP is now demanding?

The difference between what BP told the Russian shareholders it was willing to accept in March 2007 and what it is suing for now is almost Rb5.1 billion (about $218 million). In retrospect, this appears to be a sum Dudley, the BP representatives on the TNK-BP board, Graham of BP Russian Investments, and the BP board were all willing to sacrifice – without issuing a notice to shareholders. Perhaps a year ago, this was a sacrifice they judged prudent, in order to maintain amity between the BP and Russian shareholders.

Now, however, the Russian shareholders want BP to sacrifice Dudley – and BP is trying to levitate with a writ worth $218 million more than both sides had agreed to accept and pay in May. In the old fashioned sense in which Cyrano de Bergerac meant the word, this must be lunacy.

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