An Oil Romance On the Rocks

Vekselberg said there were two main disputes. First, although TNK-BP was designed to exploit oil and gas fields in Russia, he and his partners want it to explore in other countries. BP had agreed to consider that on a case-by-case basis. But, he said, BP said that it would run afoul of U.S. and British restrictions if it invested in places such as Cuba and Iran. He said that BP would not consider ventures in the Kurdish areas of Iraq because the British oil giant did not want to anger the Iraqi central government, which controls even bigger prospects in the south.

"There was no requirement about activities outside Russia," Vekselberg said, "but we had a verbal understanding."

Second, he said that BP had brought too many of its employees on loan to the joint venture, failed to train Russians to replace them and paid the expatriates too much. Vekselberg, who is a member of TNK-BP's board and the venture's chief operating officer, said the expatriates cost $150 million a year.

He alleged that the expatriates also undermined his authority. "When I say to expatriates 'we do this' they say 'sorry, I'm a BP employee,' " Vekselberg said. "It is very difficult to manage these people."

He added, "BP doesn't treat us like equal partners."

BP officials responded that there are more than enough opportunities for exploration inside Russia and the Ukraine without starting businesses in Cuba, Sudan, Burma or Iran -- all places the Russia-based partners proposed. In addition, BP said TNK-BP was exploring opportunities in Venezuela and Turkmenistan.

The average cost of finding and developing a barrel of oil over the past five years has been $2.20 a barrel, the company said in a news release. Even though Russian taxes eat up almost all the revenue above $28 a barrel, the country is still a lucrative place for the oil business. (Russia is weighing an increase in that threshold.)

BP defends its use of foreign workers, some on loan to the Russian joint venture and some of whom had quit other jobs and become full employees of TNK-BP. The expatriates make up a tiny portion of the more than 60,000 employees. The whole idea of the venture was to import BP know-how and to boost output at existing Russian fields and prospects. Output has grown 5.8 percent a year, BP says.

"The idea is to apply west Texas technology to west Siberia," a BP executive said in 2006. Many of the expatriates specialized in finance and were based in Moscow, preventing shenanigans by Russian managers, people close to BP say. At a time of labor shortages in the oil industry, BP officials say, TNK-BP is lucky to be able to draw on BP manpower.

The two sides also have different priorities. The Russian partners want to take cash out of the venture, while BP says it is pursuing a long-term program of building reserves and production. "They are interested in the short-term and not the long-term health of one of Russia's greatest assets," Robertson said.

Things have unraveled over the past few months. When it came time this spring to apply for visas for about 150 expatriates on loan from BP, Khan and Vekselberg applied for 84. Dudley could not attend the visa meeting because he was attending a board meeting of one of the firm's subsidiaries, where he feared the Russian partners were trying to install their own directors to wrest control of key assets, including Russia's largest oil field.

Separately, a lawsuit against BP was filed in Siberia by a firm called Tetlis, which had no offices or business. Its owners, however, had formerly been associated with Alfa Finance Holding, belonging to Fridman. Then in April, TNK-BP defied Dudley's orders and turned off the electronic building passes of employees with visa troubles.

In addition, Russian tax agents raided the firm's headquarters, seizing documents. Unions lodged complaints. Dudley was cited for failing to provide proper safety training.

Meanwhile, the firm's board didn't meet for months as Russian partners held out for the dismissal of Dudley while BP stood by him. At a meeting of the joint venture's board last week, BP said it would postpone dividend payments until September; the Russian partners said they would block the business plan, obstructing new capital expenditures.

"They're holding hostage capital expenditures . . . which at any oil company is the lifeblood of the company," Robertson said. He said it would hurt operation and lower production this year.

Last week after a group of Russian employees filed a lawsuit against him, Dudley told reporters at a Moscow news briefing "we have reached a new low in the tactics being used. . . . .These claims will tear the company apart."

For all the hassles, the Russian venture has been extremely lucrative. BP paid the Russian partners $7.8 billion for its half of the enterprise. It has received $9 billion in dividends and will continue earning $2 billion or more a year. BP's share of the Russian venture accounts for about a quarter of BP's worldwide production and almost a fifth of its proven reserves.

BP isn't giving up. Robertson said, "we are not going to be driven out of a country by the actions of these four individuals."