BP yesterday put its faith in Russia and a host of other politically volatile countries to build its future as it tried to draw a line under a year of production setbacks.
Lord Browne, the chief executive, denied he was ”betting the barn on politically volatile countries”, saying: ”Each one has to be assessed on their merits according to the risk.”
He regretted the company’s missed output growth targets but said he had tightened up head office control over regional businesses and dumped single targets in favour of ”indicative ranges”.
In the biggest foreign investment in the country yet, BP is paying Alfa Group and other key Russian investors a total of $6,75-billion for a half share in what will be a merged combination of TNK and Sidanco.
Some $3-bbillion will be handed over immediately in cash with the rest coming via three annual tranches of $1,25-billion in BP shares to create Russia’s third largest oil and gas group after Yukos and Lukoil.
The deal, expected to be completed by the summer, would be immediately accretive to cashflow and earnings per share while giving BP an extra 500 000 barrels per day.
The British oil major will put five executives on the as yet unnamed company board and choose the chief executive, but all decisions will require unanimity.
BP had a torrid time in Russia with a legal battle in the late 1990s over Sidanco, in which it had bought a 10% stake, later increased to 25%.
Lord Browne said BP risk would be reduced by Alfa and Access-Renova (AAR) being tied in to their 50% stake at least until the year 2007.
He had learned a lot about the country while putting in place strong corporate governance and the shareholder agreement was subject to English law.
”These prudent measures, combined with Russia’s greatly improved economic stability, improved legal system and increasing commitment to international rules of trade and business have convinced BP that now is the time to deepen our partnership with AAR,” he explained.
BP has also earmarked five other new areas which will receive the bulk of this year’s raised $10-billion worth of upstream capital expenditure: Angola, Azerbaijan, Trinidad, Asia Pacific LNG and deep-water Gulf of Mexico.
These are considered high growth areas where BP has already established leading positions, and low-cost production there compares favourably with mature areas such as the North Sea.
New exploration boss Tony Hayward insisted Britain had not been abandoned, saying $1-billion had been allocated for projects offshore.
UK production was expected to stay static at about 500 000 barrels per day till the end of the decade.
BP has already sold its key Forties field along with Arbroath and Montrose as well as a range of assets outside Britain worth $5,5-billion throughout 2002 and this year.
Some of the risks of its new territories were visible yesterday with demonstrators picketing the company’s new headquarters at St James Square, London, over the environmental impact of a Baku to Ceyhan pipeline from Azerbaijan.
Shares in BP yesterday finished 14p higher at 393,5p. Analyst Tony Alves of Investec Securities said he was ”fully behind” the new strategy. Russia was a ”phenomenal opportunity” for BP. – Guardian Unlimited Â