BP says shareholder control broke down at unit of TNK-BP

MOSCOW Thu Nov 3, 2011 11:48am EDT

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MOSCOW Nov 3(Reuters) - BP has written to its main partner in TNK-BP asking for an assurance there be no repeat of what the British oil company said was a breakdown in corporate governance at the main operating unit of its Russian joint venture.

BP said the unit -- TNK-BP Holding (TBH) -- went to court in support of a $2.8 billion lawsuit against two BP executives without the approval of TBH's board.

The move "was a breach of the charter of TBH by the management of TBH," BP Russian Investments director Robert Norris said in a letter -- sent last week and seen by Reuters -- to Alfa-Access-Renova, a consortium of four Soviet-born billionaires who jointly own TNK-BP with BP.

"If this were done with the assistance, encouragement or awareness of a shareholder or a shareholder nominated director, that would also appear to be a breach of the shareholder agreement by such a shareholder," Norris said.

An official at AAR declined to comment.

While BP is asking AAR to adhere to their TNK-BP shareholder agreement, its own adherence to the rules of governance at Russia's No. 3 oil producer is at issue in Stockholm arbitration proceedings called to determine whether BP was within its rights to join forces with state oil company Rosneft in a deal outside the scope of its partnership with AAR.

AAR said BP could only pursue the Rosneft deal through TNK-BP, and the deal collapsed when AAR refused a $32 billion offer from BP and Rosneft to exit TNK-BP and clear the way for what would have been a landmark Arctic drilling deal.

Instead, the joint venture to develop three prime offshore blocks in the Kara Sea went to U.S. group ExxonMobil , with AAR and BP left to squabble over the matter.

As the arbitration process enters its ninth month, each side appears keen to ensure scrutiny of the opposing side's behaviour and demonstrate good faith on its own behalf.

AAR and BP say TNK-BP is operating normally and, as a sign of peace between them, point to an Oct. 21 deal to allow Alfa Group head Mikhail Fridman to remain as chief executive for two more years, after the departure of deputy CEO Maxim Barsky.

TBH is the core unit of the TNK-BP group of companies where production, refining and marketing are concentrated.

Sources close to both sides said the letter had prompted an exchange of correspondence but no result to date -- while the AAR-BP shareholder agreement says TNK-BP cannot take legal action worth more than $100 million without leave from the board, there appears to be little agreement on how that rule applies to subsidiaries and management.

COURT BATTLES

BP faces legal action led by a small TNK-BP shareholder whose suits say TNK-BP lost billions of dollars when BP failed to tie up with Rosneft, a deal that was to be sealed by an exchange of shares.

BP said TBH filed an appeal against a judge's ruling that a suit against the BP directors did not have enough shareholder support, a likely precursor to its dismissal. While TBH had proposed to its board that it join the suit against the two directors, the appeal was filed before the board met.

In its letter, BP said the appeal by TBH must be withdrawn and an investigation launched into the matter.

It also said there should be "disciplinary action against any management member whom the audit committee considers to have knowingly breached the charter, corporate governance rules of TNK-BP Group or the shareholders agreement."

Separately, just before his departure, Barsky signed a letter recommending TNK-BP take legal action against BP for damages, sources said. That proposal may be heard by the board on Nov. 10.

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