Streetwise Professor

May 10, 2011

How Valuable is Bob Dudley’s Face?

Filed under: Economics,Energy,Politics,Russia — The Professor @ 1:40 pm

Or Igor Sechin’s for that matter?   Based on photos–not much!–but given the Frankenstein deal that Rosneft, AAR, TNK-BP and BP are stitching together, they must be really valuable.  That’s because the only reason to proceed with this monstrosity is to save Dudley’s and Sechin’s faces.

How wacky is the structure proposed by BP and apparently accepted by AAR? This wacky:

Three details of the January deal have been changed, Vedomosti reported.

Firstly TNK-BP replaces BP in the share swap. Second, the shares which were to be traded are to be placed in a ring-fenced fund exclusively for investment spending.

Finally, BP and Rosneft cannot elect their own representatives on to each other’s boards. Voting rights on behalf of the swapped shares will be held by an independent fund manager.

So, no board representation, the shares cannot be voted, BP’s ownership in the Arctic venture is diluted by half, BP is stitched even tighter with the AAR crowd that it hates (with said hate returned with interest–one swap that keeps on paying), the Arctic prospects must be explored through TNK-BP which doesn’t have the technical expertise to do so, thereby requiring BP people to be assigned to TNK-BP, which is hugely inefficient and is one of the things that led to the blowup culminating in Dudley’s ouster a couple of years back.  I’m sure I left something out, but that’s more than enough to convince any sane person to say tomato-tomahto let’s call the whole thing off.

This wasn’t obviously a great deal for BP under the originally proposed terms.  I thought it was a bad risk putting so many eggs in the Russian basket, and wrote it off as a testament to BP’s desperation, post-Macondo.  But that deal was a jewel, compared to this . . . thing . . . being stitched together now.

But Sechin (and apparently Putin) and Dudley are so invested in a deal–any deal, apparently–that they feel compelled to proceed.  Again, only face saving can explain this.   BP’s shareholders should revolt, because they’re paying for Dudley’s mug with their money.  So should the Russian people, because they’re paying for Sechin’s, but pigs have yet to learn to fly.

The only party that will come out of this deal happy will be the AAR guys.  They will, no doubt, make the lives  everybody at Rosneft and BP’s so miserable in the coming months that they will get bought out at a handsome price.  One would hope that they use some of the money to sculpt a bust of Dudley, because the value of his visage will make them even filthier rich than they already are.

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  1. Yeah, let’s see if those BP-corraled pigs can fly. On the other hand, if I remember correctly, (heirs of) French investors in tsarist Russia got compensated a handsome 0.2% of their investment a few years ago. So maybe BP shareholders have nothing to fear after all.

    Comment by Ivan — May 11, 2011 @ 2:09 am

  2. Once the aftermath of the GOM travesty subsides a bit more it will be Bye Bye Bobby at BP. I must admit that at least he has been active.

    Comment by pahoben — May 12, 2011 @ 6:14 am

  3. The emergency response guys I talk to in the oil business reckon in a few years the BP reacion to the GOM spill will be held up as an example of how things should work.

    The more I hear from them, the more I think we’re lucky that it was BP who had the spill.

    Comment by Tim Newman — May 12, 2011 @ 6:58 am

  4. I understand that Putin’s buddy (FSB colleague-Shishin) is one front runner to replace Sechin as chairman of Rosneft. If he is the replacement an FSB General ought to be able to keep Dudley on the straight and narrow.

    Tim-BP’s completion decisions on the well were very very unusual.

    Comment by pahoben — May 12, 2011 @ 7:57 am

  5. Oh, it’s handling of the well was appalling. I was referring to the reaction to the spill, or at least, from the time when the Deepwater Horizon was sunk and the beach knew how bad the situation was.

    Comment by Tim Newman — May 12, 2011 @ 3:04 pm

  6. Question for SWP — how exactly is this different from Vladimir Vladimirovich trying to talk down the price of aluminum, gasoline or other commodities within Russia? I mean CME is based in Chicago, after all…

    Comment by Mr. X — May 12, 2011 @ 4:01 pm

  7. Yeah-they did mount a massive response.

    Comment by pahoben — May 12, 2011 @ 9:08 pm

  8. Russians are losing confidence in their government at a rapid rate.

    If they actually heard any real facts about it, instead of state-sponsored propaganda on TV, the Kremlin would be in single digits now.

    The real Russia:

    Not even Putin can start brand new Lada, or open the trunk.

    Comment by La Russophobe — May 13, 2011 @ 5:01 am

  9. @Mr. X. Oi. Where to begin? There’s a big difference between a government taking actions with the specific intent of causing prices to be lower than they should be in order to score political points on the one hand, and a private entity acting in what it perceives to be its own self-interest, but which can have perverse unintended consequences on the other. The whole point in my post is that CME is acting in a way that makes sense from its perspective–it is protecting itself and its members, but is not internalizing some effects on the market. It is not attempting to cause prices to move one way or the other. The implication that I want to bring home is that expanding the scope of clearing will also expand the potential for these adverse external effects. That’s a whole different thing from VVP’s specific attempt to manipulate prices through political pressure.

    There’s a closer analogy between what Putin did, and what Obama has been doing with the anti-speculative rhetoric, the setting up of the interagency task force to investigate speculation, etc.

    What’s more, whenever the coercive force of government is involved, the stakes are higher and the potential to escape or mitigate the adverse consequences are far less. This is particularly true in Russia, where the power of the state, and the executive within the state, is not effectively constrained by law; where the consequences of crossing Putin or some other thug acting under the color of state authority can be exile, financial ruin, or imprisonment–or worse. CME has nowhere near the power, and is far more constrained by market and legal forces.

    In other words, yeah, CME is from Chicago. But Putin is the one who is far more like Capone.

    The ProfessorComment by The Professor — May 13, 2011 @ 6:09 pm

  10. As for Dudley’s face and stitching-if AAR finances a re make of Frankenstein they could save money on make up by casting Bob as the monster. I don’t know who would star as the good Doctor-maybe Sechin.

    Comment by pahoben — May 17, 2011 @ 9:07 am

  11. @Pahoben–LOL. Sounds personal!

    The ProfessorComment by The Professor — May 17, 2011 @ 3:52 pm

  12. @Pahoben–c’mon, man–Sechin has to play Igor!

    The ProfessorComment by The Professor — May 17, 2011 @ 8:54 pm

  13. roflmao-you are right he must be Igor.

    Comment by pahoben — May 17, 2011 @ 9:26 pm

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