BP reported that an overhaul of the governance structure of Russia's third largest oil company, TNK-BP, has been agreed in principle by the two main owners, BP and Alfa Access-Renova (AAR). The aim is to better align their respective interests and improve the transparency of TNK-BP's equity.
A memorandum of understanding (MOU) signed today and due to be finalized in detail over the coming months, envisages the re-structuring of the TNK-BP board through the appointment of three new directors independent of either side.
The MOU also includes an option to sell up to 20% of a subsidiary of TNK-BP through an initial public offering (IPO) on the international financial markets at an appropriate future point, subject to the consent of the Russian authorities.
BP chairman Peter Sutherland said that an agreement would align the two sides around a shared agenda for value growth and allow BP and AAR to move forward, relieving recent tensions.
"It will create a stable base from which to grow the joint venture to the benefit of everyone involved, including the Russian state for which strong capital investment and continued technical innovation to boost declining oil output are so important," Sutherland said.
BP chief executive Tony Hayward described the agreement as "a sensible means of resolving a situation that could not continue without causing serious damage to what has been an immensely successful joint venture for all concerned."
"I now look forward to a fruitful conclusion of negotiations so that we can rebuild trust with AAR and resume our record of success for the benefit of all parties," he said. "A transparent, responsible approach to governance will be a critical factor in the appeal of TNK-BP to potential future investors, if the company is to be fully valued on the financial markets."
The MOU envisages the appointment of a new independent chief executive nominated by BP and approved by the TNK-BP board. The management committee, responsible for running operations, will be reduced significantly from the current 14 members and will include the chief executive, the chief operating officer, the chief financial officer and an executive director.
The main board of TNK-BP will be adjusted in size to four representatives each from BP and AAR, together with the three new independent directors not affiliated to either side. The company will continue to operate under English law.
Current Chief Executive Bob Dudley will step down before the end of the year. In nominating his replacement, BP will offer a Russian-speaking candidate with extensive Russian business experience. The new CEO will be explicitly incentivised to focus on further improving transparency, financial returns and the market value of the Company's shares.
Describing Dudley as "an absolutely outstanding CEO of great courage and strength of character," Hayward said, "Bob originally intended to step down at the beginning of the year but volunteered to stay in place to guide the joint venture through what he realized would be a difficult transitional phase. He will be very hard to replace.
"During the last five years his leadership has been crucial in building what is arguably the most successful oil business in Russia, with the best record of production growth, reserves replacement and total shareholder return. He has overseen extraordinary performance, financial and technical, delivering dividends of more than $20 billion during that period and paying taxes and duties to the Russian Federation of over $80 billion, a record that is surely unrivalled," Hayward said.
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