It’s business, Russian-style – and let’s hope it’sthird time lucky for BP’s Bob Dudley
‘It was just business, Russian-style.’ That was how Bob Dudley described to me his experience in 2008 of having to manage the TNK-BP joint venture in Siberia by email from a secret location in Central Europe — because BP’s Russian partners had made it too dangerous for him to remain in the country. They did so partly by provoking tax and work-permit hassles which might not have been possible without the tacit approval of Vladimir Putin.
And that wasn’t Dudley’s first bad experience of Russian negotiating techniques: in his days with Amoco, before it merged into BP, he spent two maddening years in Moscow failing to nail down a strategic alliance with Yukos, the oil giant controlled by the now-imprisoned oligarch Mikhail Khodorkovsky. So it seems remarkable that, in his first big gambit as BP’s chief executive, he has returned for a third bout in the Russian arena, shaking prime minister Putin’s cold and clammy hand over a £10 billion share-swap with Rosneft — the Kremlin-directed energy giant which grabbed back Yukos’s most valuable assets — that will lead to joint offshore exploration in the Russian Arctic.
The deal has been greeted by a flat response from the stock market, sniping from US congressmen and Greenpeace, and the disturbing news that Ed Miliband is ‘pretty worried’ about it. It certainly carries huge political and operational risks, and a decade or more will pass before its success can be measured in production terms. But if it’s true that the Arctic South Kara oil field is comparable in potential to the North Sea, then it is surely worth a try. BP brings (despite accusations that it has failed to learn the lessons of the Gulf of Mexico disaster) the deep-sea drilling technology the Russians lack, and Bob Dudley has as much experience of ‘business, Russian-style’ as anyone in his industry.
And if there’s something deeply unpleasant about Putin, that’s no reason not to engage with him. Gone are the days when Western companies could help themselves to other nations’ oil in exchange for modest royalties and lavish hospitality for princelings when they came to London. As Dudley explained to me, complex joint ventures are the future — what he called ‘the magic’ of combining global BP know-how with the closely guarded resources of host governments and state oil companies.
So we should cautiously celebrate the Rosneft deal, not least because it shows that BP has moved on from its disastrous passage last year — and congressional xenophobes should take comfort from the fact that South Kara is about as far as it is possible to be from the shrimping grounds of the Louisiana coast. That still won’t stop them complaining that (since Rosneft is acquiring 5 per cent of BP, and vice versa) a major supplier of fuel to the US military now has the Kremlin as a shareholder. Massachusetts Democrat Ed Markey won the soundbite prize on that one by declaring that BP now stands for ‘Bolshoi Petroleum’. I suspect he meant ‘Bolshevik’, but doesn’t know the difference.
Schleswig-Holstein question
I really wouldn’t have bet on One Hyde Park, the Candy brothers’ monstrously opulent Knightsbridge apartment complex, reaching completion without a financial crisis. But apparently it has done so. At least 50 of its 86 apartments have been sold, the fanciest penthouse having fetched a world record £140 million. The development, which was backed by the prime minister of Qatar, is about to repay more than £900 million to the banks that refinanced it in October 2007 in the teeth of the global credit storm.
What was notable about the refinancing is that it involved a consortium of German banks which you might think had no business whatever to be lending their depositors’ money against highly speculative London real estate — any more than they should have been dabbling in US subprime paper, which many German institutions also did to their cost and regret. What possessed them? You might well ask — particularly if you’re a German saver — and indeed we might label this the modern Schleswig-Holstein question, since lenders to One Hyde Park included the landesbanks (state-backed regional savings banks) of those historic duchies as well as of Hessen and Hamburg. And by coming to the table when they did, they allowed Bank of Scotland, the wildest of our native British lenders, to get out. If even the big gamblers from Edinburgh didn’t fancy it, the game must have looked very risky indeed.
So the good burghers of north Germany can raise a glass of schnapps to Nick and Christian Candy for steering the project to a satisfactory conclusion against the odds. And the rest of us can take note that — non-dom levies, banker-bashing and general gloom notwithstanding — there is still remarkably buoyant demand at the fantasy end of the London residential market.
Fill your coal cellar
The smart investor’s response to the Queensland floods is to stockpile coal — needed for steel-making — because its price is soaring in response to the disruption of Australian mines that account for two thirds of global supply. Nat Rothschild, the party-loving friend of oligarchs and Cabinet ministers, seems to have got ahead of the game by investing $180 million of his pocket money in of one of the world’s biggest coal mines, deep in the jungles of Borneo.
So I’m wondering if he’d care to advise us all on the less obvious question of what to buy or sell in response to the Tunisian revolution. The only idea I can offer so far comes from another suave young Englishman of my acquaintance, who might have stepped straight out of the pages of Evelyn Waugh and would have been a wonderful contestant on that old game show What’s My Line? He’s a travelling salesman — of bespoke medals, orders of chivalry and dress uniforms for dictators and their entourages all over the Africa continent. ‘Aren’t coups d’état a bit of a hazard?’ I asked. ‘Oh not at all, they’re terrifically good for business.’
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