London/Moscow - The long-running dispute between British Petroleum (BP) and its partners in Russian joint-venture TNK-BP was settled Thursday when the oil giant announced that controversial chief executive Robert Dudley would be replaced in an overhaul of governance structures. Russian and British shareholders of the 50-50 venture struck a compromise that envisaged the restructuring of the TNK-BP board through the appointment of three new directors independent of either side of TNK-BP's two principal owners, BP and Alfa Access-Renova (AAR), both sides said in a statement.
BP will name a new CEO to replace Dudley, who fled Moscow in July claiming harassment by Russian shareholders. The appointment will need to be approved by the TNK-BP board, both sides said in a statement.
The aim was to "better align their respective interests and improve the transparency if TNK-BP's equity."
The two sides signed a memorandum of understanding Thursday which also included the option to sell up to 20 per cent of a subsidiary of TNK-BP through an initial public offering on the international financial markets "at an appropriate future point."
BP CEO Tony Hayward called the agreement "a sensible means of resolving a situation that could not continue without causing serious damage."
"I now look forward to a fruitful conclusion of negotiations so that we can rebuild trust with AAR and resume our record of success for the benefit of all parties," he said.
Speaking for the Russian side, leading shareholder Mikhail Fridman said the agreement "opens fundamentally new opportunities for development of TNK-BP."
"By agreeing to enhance the system of corporate governance of TNK- BP and enabling the company to compete on the international stage, we are beginning an exciting new chapter in the development of a great company," said Fridman.
Shareholders at TNK-BP, Russia's third-largest producer, had been locked in months of public wrangling over Dudley since last year, demanding his replacement.
Dudley would be replaced by a Russian-speaking candidate with extensive Russian business experience, the statement said.
The dispute was closely watched by foreign investors, who suspected the company's troubles prefaced a government-sponsored attempted to move TNK-BP's assets into state hands for example those of Russian energy giant Gazprom.
Russia's business newspaper Vedomosti cited one expert Thursday as saying the oil firm had lost 40 percent of its market value in anxiousness over the dispute.
TNK-shares in Moscow rose by 13 per cent on the news, while in London BP shares increased by 3 per cent after suffering for months from the dispute.
"This is a much better outcome for BP than people had expected," a senior industry executive told the Financial Times Thursday.
TNK-BP was formed in 2003 and has grown to become one of Russia's largest oil companies, contributing around a quarter of BP's profits. The two sides have been locked in a bitter dispute over the firm for several months, during which Dudley was banned from working in Russia for two years and BP pulled out staff.
There were also angry accusations from BP chairman Peter Sutherland who alleged that AAR was trying to wrest control of the venture helped by "manipulation" of the Russian state.
Under the agreement, the main board of TNK-BP will increase from 10 to 11 members, encompassing four representatives each from BP and AAR, and three new independent directors not affiliated to either side.
