17 October 2003 01:43
Second time lucky THE LEX COLUMN:
Trust is earned, not conferred. BP has stressed its record as an industry
first-mover and defended the price paid for its TNK-BP joint venture. This
Russian deal has changed the landscape and left its rivals playing catch-up.
Nevertheless, it will take more than an upbeat presentation to persuade
investors that Russia's oligarchs will not just take the money and run.
After coming off worst in an encounter with Mikhail Fridman over Sidanco in
1998, BP has taken precautions. The joint venture is subject to English law.
The risk of political interference remains, with the home side likely to be
favoured. A 50-50 partnership makes sense.
BP has raised its forecasts for the venture's expected growth. The
impact on return on average capital employed is expected to be slightly
positive - but only if Brent crude stays above Dollars 20 a barrel. This may
appear too optimistic a crude price for those concerned that over-investment
will depress returns. But TNK-BP produces positive net cash flow down to a
more comfortable Dollars 13 a barrel. BP abandoned production growth targets,
leaving analysts to focus on ROACE. Now it is asking investors to trust that
the deal is a good one, even if the returns look uninspiring.
Western partnerships will help Russian companies maximise the potential from
their oil assets. But concerns remain that BP is looking at the long haul,
while Russia's oligarchs are more interested in shorter-term cash flows.
The deal's strategic logic is clear, but trust takes time when the
poacher turns gamekeeper.
[FTI [The Financial Times]] |
RUSSIA IN FACTS
