TNK-BP Shareholders Demand CEO Be Fired

May 30, 2008

BP Plc, the largest foreign oil producer in Russia, rejected a demand by four billionaires to fire the head of their TNK-BP venture, intensifying a shareholder dispute amid reports OAO Gazprom wants to buy the company.

Len Blavatnik, Mikhail Fridman, German Khan and Viktor Vekselberg, who control half of TNK-BP, said in a statement today that BP Chief Executive Officer Tony Hayward rebuffed their request to dismiss TNK-BP CEO Robert Dudley for making decisions that they said put BP's interests above their own.

Recent comments by Dudley to the media about relations between the shareholders were ``deeply inappropriate,'' the billionaires said in the statement. Shareholders boycotted a meeting in Cyprus yesterday ``because there was no consensus regarding the resignation of R. Dudley from the CEO position.''

TNK-BP, formed in 2003, has faced legal pressure since a clause prohibiting shareholders from selling their stakes expired at the beginning of the year. The KGB's main successor agency, the FSB, raided the venture's Moscow offices in March, after an employee was charged with industrial espionage and 148 foreign workers were denied visas.

``The inevitable result is that a deal will be done,'' said Chris Weafer, chief strategist at UralSib Financial Corp. who until last year worked at Alfa Bank, part of Fridman's and Khan's Alfa Group. ``BP will have a minority stake and Gazprom will have control.''

Gazprom Offer

State-run Gazprom, the world's biggest natural-gas company, offered $20 billion for a controlling stake in TNK-BP in March, Vedomosti newspaper reported then, citing unidentified people familiar with the matter. Russian President Dmitry Medvedev is also chairman of Gazprom.

The billionaires and BP have each denied holding talks on selling their stakes. Gazprom denied it is preparing to take control of TNK-BP. ``This is all speculation,'' Gazprom spokesman Sergei Kupriyanov said in a text message by mobile phone today.

BP executives met with the Russian shareholders yesterday to discuss the ``strategic direction'' of the company, and talks will continue, BP spokesman Vladimir Buyanov said.

Management `Breakdown'

Dudley told Vedomosti this week the feud between BP and its Russian partners had led to a ``breakdown'' in management reminiscent of the 1990s. As an example, Dudley said one shareholder sought this month to slash the number of work permits TNK-BP can issue to foreigners. The shareholders also differ on investments in exploration, maintenance, safety and overseas expansion, Dudley said. TNK-BP accounts for about a quarter of BP's global production and about a fifth of its reserves.

AAR, the group representing Fridman's and Khan's Alfa Group, Blavatnik's Access Industries and Vekselberg's Renova Group, criticized Dudley in today's statement for making ``deeply inappropriate'' remarks to the Russian media.

TNK-BP board member Jean-Luc Vermeulen, an AAR representative, quit yesterday, saying he couldn't help settle the shareholders' dispute, according to two people familiar with the matter. Vermeulen previously worked for Total SA. The board may try to meet next week, the people said.

The Russian shareholders may be applying pressure to BP to create a new holding with Gazprom that would