BP's rivals shift in Russian tussle

By Michael Stott

MOSCOW (Reuters) - The fate of the second biggest foreign investment in Russia hangs in the balance amid signs of a shifting mood in the Kremlin which may have wrong-footed investors and one of the world's biggest oil companies.

Raided by security services, its board paralyzed, key technical experts barred from working and deluged with court cases and labor inspections, TNK-BP is a struggling $38 billion oil company producing as much crude as Britain.

As investors scrutinize the saga to read the runes for future projects in Russia, signs are multiplying that the root of the dispute may not be in the Kremlin but rather the boardrooms of Russian billionaires. Even that is uncertain.

TNK-BP, a highly lucrative 50-50 joint venture between BP and four Russian-connected billionaires, began in 2003 amid much fanfare in a deal blessed by then-president Vladimir Putin. It produces a quarter of BP's global oil output and posted a net profit of $5.7 billion last year.

TNK-BP's first five years were a success story. Former BP managers working at the venture talk with pride of how they improved management of oilfields using the latest technology, cut back leaks, and boosted operating efficiency.

But its ownership structure, which gives management control to a foreign oil major, became an anachronism following a Kremlin-led drive from 2003 which took back under the state's wing control of all big Russian energy assets.

So when a campaign against TNK-BP suddenly started this year involving tax police, alleged labor code violations, security service sweeps and court cases, many assumed the Kremlin was pressuring the firm to accept a state partner.

A similar barrage of official harassment was unleashed in 2006 against Royal Dutch Shell to force it to sell a controlling stake in its giant Sakhalin gas venture to Russia's state-dominated energy champion Gazprom.