Source: The Wall Street Journal                   Date: 17 March, 2011

BP PLC, in a vote last week, blocked an attempt by its billionaire Russian partners to join its planned USD16-billion alliance with Russian state oil giant OAO Rosneft, deepening a conflict that could turn into a major setback for BP. The BP-Rosneft accord, signed in January, envisioned a share swap that would give Rosneft a 5% stake in BP and allow the British oil giant to jointly explore and develop parts of the Russian Arctic. BP would get 9.5% of Rosneft's shares in the transaction.

In February, however, another group of BP's partners in Russia won a British court order temporarily blocking the Rosneft deal. The partners, a group of Soviet-born billionaires, contend that the deal violates exclusivity provisions in their shareholder agreement with BP for the Russian joint venture TNK-BP Ltd. The group has sought to have TNK-BP replace BP in the Rosneft deal.

TNK-BP's management, led by Chief Executive Mikhail Fridman, who also leads the group of Russian shareholders, had proposed to the venture's board that TNK-BP buy BP shares from the company to swap them for the Rosneft stake.

But BP said it wouldn't let TNK-BP buy the BP shares and its representatives on the TNK-BP board voted against the plan at a meeting in Paris Saturday, effectively scuttling it.

In a setback for BP, the board's three independent directors voted along with the four representatives of the Russian shareholders in favor of the proposal, which needed a unanimous result to pass.

The Russian partners, meanwhile, rejected a BP proposal to allow BP and Rosneft to go ahead with the share swap with Rosneft as planned while opening talks on letting TNK-BP into the Arctic deal. AAR, as the Russian shareholder group is known, argued that would amount to BP entering an alliance with one of TNK-BP's main competitors.

In a statement, BP said that AAR "through their actions, have risked progress to the detriment of Rosneft, TNK-BP and BP." Mongolia buys almost all its petroleum products from Rosnef.