Oligarchs in the Kremlin: For the last dozen years, we have seen ample evidence of Vladimir Putin's policy on Russia's oil and gas industry -- a paramount strategic asset, it is to be jealously held, only begrudgingly ladled out to foreigners, and always, always to remain in firm Russian hands. That being the history, what are we to make of the assertion of a group of Russian magnates that Putin has changed his spots -- that he is now prepared to allow BP to assume 100 percent ownership of Russia's third-largest oil producer?

We are speaking of course of TNK-BP, the star-crossed, nine-year oil marriage between BP and AAR, a consortium led by a take-no-prisoners Russian financial titan, Mikhail Fridman. Over the years, the two companies have gone to war numerous times, only to regroup again and earn outsized mutual dividends. But this time, both sides seem prepared to call it quits. A few days ago, AAR announced that it will enter negotiations with BP to either rebalance or -- in the more optimal alternative -- dissolve the marriage. In AAR's preferred scenario, it will be bought out in a cash-and-share deal that gives it 10-12 percent of BP's shares, possibly the largest single stake in the British company. No one can say how the end game turns out, but as a mind exercise what say we kick the tires of AAR's strategy?

Divorce, Russian style for BP: Four days after its Russian oligarch partners called for a split-up, BP says it received an unsolicited bid for its 50 percent share in TNK-BP, the Russian oil company. The bidder seems to be a Russian state company. The cash price could be big -- at upwards of $20 billion and more. But the deal will not be that straightforward -- that is not how Russia works. Rosneft, for example, will not simply hand over $20 billion in cash. Nor would President Vladimir Putin wish to be seen to be showing BP the door. Look for a deal with cash-and-stay components, perhaps involving talks about the Arctic.

This outcome is a long time coming. BP's relationship with the oligarchs has been star-crossed from almost its beginnings in 1997. The very next year, BP lost the main value of this first joint venture -- a company called Sidanco -- after paying $571 million for a 10 percent stake. In the subsequent six years, BP handed over some $7.5 billion more in cash to the oligarchs, and ultimately ended up with the 50 percent stake in TNK-BP as we know it today. Throughout, banking oligarch Mikhail Fridman and his partners -- known collectively as AAR -- have regularly taken BP for a shellacking. In 2008, things got so dicey that current BP CEO Bob Dudley -- then in charge of TNK-BP -- went into hiding incommunicado for several months.

BP has been paid handsomely for its misery. Last year, TNK-BP accounted for 29 percent of BP's global oil production, and 27 percent of its proven reserves. In 2011, BP received $3.75 billion in dividends from TNK-BP, or 17 percent of its $22.2 billion in cash flow. Accumulatively, BP's dividends since 2003 have been about $19 billion, according to BP. This makes its share of TNK-BP theoretically of great value. Bernstein Research puts the value of BP's stake at $18.5 billion to $20 billion, but others think the price could be more. Richard Griffith and Nick Copeman, analysts at Oriel Securities, estimates the value at $24 billion.

Even though no one likes to suffer like that, this does not mean that BP goes easily. Nor incidentally is BP necessarily interested in mere cash, notwithstanding its large remaining financial exposure after the 2010 Gulf of Mexico oil spill. BP is interested in really big future oil production. Like in the Arctic, the sort of exploration acreage recently acquired in separate deals by ExxonMobil, Eni and Statoil. One suspects that negotiation toward a BP Arctic deal will be an explicit or implicit component of a TNK-BP sale.

In an email exchange, BP spokesman Toby Odone told me that the Arctic will play no role in any sale. He said:

This is the first stage in what could be a very lengthy process to sell our share in TNK-BP. It is far too early to say what we will do with the money. All we have done today is announce an intention to look further at expressions of interest in purchasing some or all of our stake in TNK-BP. It is not about Arctic or other businesses in Russia, current or future.

Chasing the runaway anti-fracking train: An industry-led group suggests that shale gas drillers be required to disclose the chemical composition of their drilling fluid, which critics say can contaminate drinking water. This assessment (located half-way through a new report issued by the National Petroleum Council, and led by two big shale-gas drillers -- Anadarko's Jim Hackett and Chesapeake's Aubrey McClendon -- plus Daniel Yergin, the oil historian) isn't surprising in content: The industry has been under enormous pressure to do so, because as it stands these drillers may be jeopardizing the potentially enormous economic and geopolitical benefit of shale gas. There is that much of a perception problem about the drilling method called hydraulic fracturing, or fracking.

Yet is one fully persuaded by this high-profile attitudinal turnaround? More than half of the 46-page report -- the entire first half -- is a paean to the shale gas bonanza. When it finally gets to the doubts surrounding the industry, it does so by first again praising its environmental performance. Even when it suggests that the Interior Department require all frackers to join Frac Focus, a Web-based chemical registry, the report limits that suggestion to federal lands. As for these federal lands, there too the report writers hedge -- they do not recommend a mandate for full disclosure, meaning all chemical content, but only to "participate" in Frac Focus, a very different thing. In fact, very little about the report suggests an embrace of oversight. And what's wrong with that? I think it will not quell the storm of doubts (consider this latest investigative piece by ProPublica's Abrahm Lustgarten and Nicholas Kusnetz, describing the impact of wastewater stored in open pits near fracking sites). The industry must go demonstrably overboard in its zeal for transparency if it wants not to stunt production.

I talked on the topic of fracking over beers with Peter Robertson, the former vice chairman of Chevron, who was in Washington to present a new report by Deloitte about fracking in North America. Robertson seemed flabbergasted by the magnitude of the shale gas reserves, sufficient, he said, to produce the equivalent of 6 million barrels a day of oil. Yet he was also worried about the public relations problem. For purposes of illustration, Robinson compared the U.S. shale gas industry with Saudi Arabia, where one company produces some 10 million barrels a day of oil from a few hundred wells. Shale gas is produced by some 2,000 companies "from hundreds of thousands of wells," he said. "You're only as good as the weakest link," Robertson said. "We have to win the public over on this one. We are not doing this in some corner, but in towns, villages and cities. They could progressively shut them down."

We have to set high standards, and we have to find a way to police, to self-police, this industry so that we do this right.

On chemical disclosure, Robertson wondered why "we don't just do it."

Why don't we don't just say ‘Of course we're going to tell you' [what is in the fracking fluid]. Because we are, actually. It's almost like we're just fighting it till the end. Because we're going to lose this one.

Medvedev stays, according to O&G readers: The betting stage of the Kremlin Contest is concluded, and the results are - 53 percent for Dmitry Medvedev to 47 percent for Vladimir Putin. That is, there is greater than a 50 percent chance that Putin -- the sole maker of big decisions in Russia -- will decide to keep Medvedev (pictured above today at a Tajik reception in Moscow) in place as president when his term expires in March, according to O&G contestants. That goes against the conventional wisdom, which is that Putin will opt to return to the Kremlin for another six-year term.

Some political junkies favor general public opinion surveys; others prefer barroom trash talk (and bloggery). I see significant merit in what is said by folks having sufficient conviction to back it up with a wager, in this case a small non-cash bet. But O&G bettors are outliers even among this group. U.K. bookmaker Paddy Power, for example, gives odds of Putin winning -- 2/7 for Putin and 9/4 for Medvedev, meaning that for a 100-pound bet on Putin winning you'd receive just 28 pounds back, while the same bet for Medvedev would get you 175 pounds (h/t  Anatoly Karlin). (For those with a taste for betting who believe Medvedev will get the nod, it appears shrewdest to take the other side of the 2/7 Putin bet at Paddy Power, which if I am reading correctly appears to pay 350 pounds.)

As you recall, I started off the betting by wagering that the tandem would stay untouched, and that Putin would announce his choice on Dec. 9. But O&G's bettors made me a bit ashamed about my wager of a glass of Rioja. Other bets included Secret Aardvark hot sauce of Portland, Oregon; black and white photos of Moscow taken from the same spot -- one dated 1965 and the other 2011; an African warrior mask from Malabo; and aviator sunglasses. Therefore, I am adding a signed copy of The Oil and the Glory (the book).

 

Divvying up the Libyan booty: When it comes to war, it is said, the victor gets the spoils. The unstated second part of that phrase is that these spoils are transferred in a very public manner. So it is with the unseemly matter of Libyan oil. Led by the influence of fleet-footed writer Bernard-Henry Levy, France leaped into the Libyan fray on the side of the rebels last March and did not let up. Therefore, says French Foreign Minister Allain Juppe, it is "quite logical and fair" that French oil companies have preferential treatment in the divvying up of post-war reconstruction and other oil contracts. Presumably the sentiment is shared by other NATO members such as the United States who bombed Col. Muamar Qaddafi's troops for months. At the Wall Street Journal, David Gauthier-Villars writes that Russia -- which like Brazil and China maintained a comparative arm's length from the rebels -- is miffed by NATO's sense of entitlement. Moscow wants the United Nations to lead the reconstruction. The catfight is similar to one that followed the 2003 fall of Saddam Hussain, when China and Russia initially lost their favorable oil contracts negotiated with the deposed dictator, only to win serious chunks of the oil patch in subsequent deals with the current Iraqi government. A similar outcome is likely in Libya.

Montana's governor says he's going to ride ExxonMobil "like smell on a skunk," not to mention mete out more conventional unpleasantries like going to court. In case the oil giant has any funny ideas while being subject to these measures, "There ain't nobody gonna blow smoke up the south side of this north-facing governor." Gov. Brian Schweitzer, who is a soil scientist, has been driven to this display of trash-talking by the July 1 spill of some 1,000 barrels of crude oil into the pristine Yellowstone River, about 100 miles downriver from Yellowstone National Park.

Does Exxon deserve this scale of rudeness? After all, when BP suffered this treatment last year, it had spilled 5,000 times that volume into the Gulf of Mexico. Unlike the 56 minutes it took Exxon to sever the flow of oil, BP took five days short of three months to shut off the Macondo oil well. In addition, as far as I know, nobody at Exxon has asked to get his life back, the innocently delivered but unfortunately received remark that then-BP CEO Tony Hayward will rue for the rest of his days.

 

The answer is yes. The main reason is that Exxon has all but danced on BP's grave since the Macondo spill. For example, back in March, BP's new CEO, Bob Dudley, delivered his first full-blown speech since the spill, sort of a coming-out address at Dan Yergin's annual oil show in Houston. Dudley's main message was that what happened to BP could happen to anyone and that all oil companies would have to change their procedures. It is "unrealistic" to dismiss Macondo as a "'black swan', a one-in-a-million occurrence that carries no wider application for our industry as a whole," Dudley said.

When it comes to Russia, BP stands out for its untiring use of the end-run as an operative corporate strategy, regardless of how often it is tackled on the way to the end zone. On Monday, BP floated its latest sure-fire attempt to bypass its rapscallion Russian oligarch partners, and win prize Arctic acreage in partnership with state-run Rosneft. By yesterday, though, the company had thought better of the play -- CEO Bob Dudley got in front of reporters and said, effectively, "Never mind." Back to the huddle.

Before long, it will be a year since BP stopped the spewing of oil from its Macondo rig in the Gulf of Mexico. The company has been unmoored since, a condition that BP itself hopes to correct with a dashing combination of panache, legal reasoning and negotiating skill. It may do so yet -- I hear compellingly from a few smart thinkers who argue in emails and conversation that Prime Minister Vladimir Putin himself ultimately will intervene in order to advance the best interests of Rosneft. But on the way to resurrection, there is much self-inflicted suffering.  

Recall that in January, BP unveiled a bold plan to drill for Arctic oil with Rosneft; as part of the deal, the two companies would become blood brothers, swapping some $8 billion in shares, sufficient to earn mutual board seats, though that part was left for discussion later. Meanwhile though, BP's existing Russian spouse -- the four oligarchs known collectively as AAR -- screamed foul, and stopped the agreement in European court decisions. BP was violating a long-standing exclusivity agreement with AAR for Russian ventures -- that was the main attempted end-run -- and the oligarchs would not be appeased. Since then, BP has tried to commit bigamy peacefully, and to buy out AAR for $32 billion, but miscues on both sides have stood in the way. (Pictured above: happier days, from left Mikhail Fridman, the leader of the oligarch group;  then-British Prime Minister Tony Blair, Putin; and then-BP CEO John Browne.)

This week came the latest BP play. The story was broken by both the Wall Street Journal and the Financial Times, which published anonymously sourced articles on a devilish new BP strategy for untethering itself from the oligarchs -- its lawyers somehow determined that if the company sold out any part of its TNK holding, the exclusivity agreement was null and void. Even if "one share of [BP's] 50 per cent stake" were sold, the FT reported, BP would be released from its misery. I myself do not grasp at this point why that would be the case. But I am told that this was the gist -- or threat -- of two separate conversations held Monday between AAR and extremely senior BP executives (according to the terms of the interviews, I cannot identify the participants by name; suffice it to say, however, that they hold decision-making positions).

BP, faced with Shakespearean-scale woes from Louisiana to Moscow, went to extra-legal lengths to avoid exploring Russia's oil-rich Arctic alongside its four oligarch partners. Now that it's been told it must if it wishes the benefits of the potential bonanza, does BP truly intend now to accept just half the upside that buttressed the Arctic venture's original logic? The answer is yes and no -- BP will proceed with the venture, but with a reasonable possibility of another attempt to buy out the oligarchs, according to a person involved in the process, though the latest news much increases the pricetag.

Recall that, after opting to scale back his ambitions in the U.S., BP CEO Bob Dudley (pictured above) announced a blockbuster deal for an ownership tie-up with Russia's state-owned Rosneft, with which BP would explore the Arctic together. Only, BP already had a long-standing exclusive Russian partner -- the oligarchs, who collectively call themselves AAR -- and they objected. Two European tribunals took AAR's side, thus embarrassing Dudley and, more important, jeopardizing his big return to the big leagues. On Friday, a London arbitration panel said the deal can proceed after all -- if Dudley does it through BP's partnership with AAR.

With a deadline looming next Monday, perhaps  Dudley is calculating that swallowing the bitter pill of much-lesser profit in the Arctic is a necessary step in reviving BP's and his own credibility after last year's Gulf of Mexico oil spill and the mystifying continued incompetence of its Russian affairs. Dudley may also reckon that even half the Arctic's potential riches is sufficient to exchange 5 percent of BP's shares for around 10 percent of Rosneft's, which is the entry fee for access to the Arctic.

A year after the BP Gulf of Mexico oil spill, Rex Tillerson is aggravated. What is upsetting the CEO of ExxonMobil, the biggest oil supermajor? His company is being mentioned in the same breath as BP and its lesser drillers, men who required 87 days to cap the runaway Macondo oil well, while Tillerson's own team knew that the British company was frittering away precious time with faulty ideas for ending the crisis,Tillerson tells the Financial Times. Meanwhile, the whole industry's reputation was going down the drain. Oh the injustice. Oh the calumny.

As a point of fact, Tillerson has a case. The procedure to which he is referring -- the early attempt to contain the April 20, 2010, spill underneath a dome -- was an utter failure. Hydrates formed in the containment dome, thus blocking a tube meant to siphon oil to the surface, and buoying the structure back toward the ocean surface.

What  vexes Tillerson is that at this time -- meaning in early May of last year -- an Exxon man on the spot suggested that the only way to stop the spill was to install what's called a "stacking cap" on top of the blowout preventer. Indeed BP itself hadn't believed that the dome stood much of a chance to succeed, but said it was worth a try, and on its own had considered a stacking cap for a time, but then put it on the back burner for fear of a second, underwater blowout.

But here is what really galls Tillerson -- in the end, BP did install such a cap, and that is what worked. Tillerson thinks that BP should have weighed the chances of success and risks of failure of each possible resolution, skipped the containment dome and gone straight to the stacking cap. That's what Exxon would have done, he suggests, and obviously it would have worked much earlier than 87 days. Read on for more of the Tillerson-BP spat.

TNK-BP: Clutch play by Dudley puts momentum back with BP? Counter-intuitively, the momentum may have shifted back to BP in its latest high-wire negotiations in Russia. BP's Bob Dudley (pictured above), attempting to turn around the company's fortunes after the costly Gulf of Mexico oil spill a year ago, in January dived into a highly tenuous tie-up with Russia's state-owned Rosneft, with whom it hoped to explore the oil-rich Arctic Sea. The tenuous part came because BP's long-time Russian partners, the grouping of four oligarchs known as AAR, blocked the partnership through tribunal rulings in Europe. As late as yesterday, BP and Dudley seemed to be in deep trouble -- BP had offered to buy out AAR's 50 percent of their Russia-based partnership for $27 billion; AAR apparently counter-offered with an ask of $35 billion, part of which would be paid through 10 percent share holdings of both BP and Rosneft. Dudley balked at the shareholding part, and possibly the money too. But just when hope seemed lost, Dudley got Rosneft to extend what had been a drop-dead deadline yesterday for completing their tie-up. Now BP has until this time next month.

Now a curious thing has happened. In a statement issued today, AAR CEO Stan Polovets advises BP to find a way to honor their partnership agreement faithfully. "We trust that BP will use the extension it has got from Rosneft to ensure that both the Arctic opportunity and the share swap are pursued through a structure consistent with BP's obligations under the TNK-BP shareholder agreement," he said. It's curious because Polovets said almost the identical thing yesterday.

If one is in the catbird seat, one generally  remains sphinx-like. Hence, the signal that AAR is a bit uncertain. BP now has time to turn the tables. Chris Weafer, an analyst at UralSib, thinks that the long time extension suggests that the Kremlin intervened at the last minute to keep the deal alive.

Even if he was miserly with the cash -- $35 billion does not seem like too much money for the unlisted company -- Dudley was right to refuse AAR's share demands. He would be a fool to hand over 10 percent of BP -- and hence a board seat -- to the litigious and shark-like AAR, who have shown over the last 15 years a zest for a bloody brawl. Nothing personal, of course.

 

Should the shale gas tent be folded up? If Cornell Professor Robert Howarth and a couple of his colleagues are correct, there is precious little hope -- very close to none -- of getting greenhouse gas emissions under control and preventing some of the less-pleasant repercussions of  climate change. This week, the Howarth team published a paper disputing one of the main assumptions accompanying the U.S. boom in shale gas drilling -- that it is a positive development because natural gas emits half the greenhouse gases of coal, and a third less than oil. Gas, it has been said here and elsewhere, is a "bridge fuel" until an as-yet undetermined non-fossil fuel technology is scaled up to propel the global economy along with the world's private vehicles. But Howarth says that, when one takes into account the methane released during shale gas production, coal in fact comes out cleaner. Given the hoopla surrounding shale gas, Howarth's paper has attracted much attention, including prominent display in the New York Times. But is he right?

Over at the Council on Foreign Relations, Michael Levi isn't so sure. There is no dispute regarding the hazards of methane -- this gas is pernicious. But Levi takes Howarth to task for relying on "isolated cases reported in industry magazines" along with the performance of notoriously bad Russian pipelines for his conclusions regarding how much methane escapes into the atmosphere during hydraulic fracturing, the method by which shale gas is extracted. Levi is at his most brutal in an apparent scientific gaffe -- Howarth used comparative gigajoules in order to measure the methane emissions of shale gas against those of coal. The problem is that gas produces a lot more electricity than coal gigajoule-by-gigajoule, something that Howarth doesn't take account of. For that reason, Levi favors kilowatt-hours for comparison purposes, and regards Howarth's failure to do so as "an unforgivable methodological flaw; correcting for it strongly tilts Howarth's calculations back toward gas, even if you accept everything else he says." Ouch.

Howarth explicitly states his data are thin and that more research is necessary -- methane is under-examined.  Levi agrees with him there.

Here is where we return to one of the industry's own big failures to get out in front, figure out its weak points before critics do, and fix them. We have previously suggested that the error-prone shale gas industry ought to police itself, put peer pressure on its own bad actors to straighten up, and openly disclose the content of its fracking fluid. Now a new front has opened up. It could be too late to recover entirely -- the industry is headed for serious federal regulation, the very thing it has sought to avert.

Read on for more of the Wrap

The upside of BP's latest brawl in Russia is how much we are learning about how the place works.

As you recall, in January BP CEO Bob Dudley trotted out a bodacious deal in which BP and Russia's state-owned Rosneft would swap shares -- thus owning $8 billion in each other's company -- and go on to develop the completely untapped motherlode of oil underneath the Arctic Sea. Only, this aggravated BP's Russian partners -- four oligarchs collectively calling themselves AAR -- who said BP had violated a monogamy covenant, and persuaded two European tribunals to halt the deal. One immediate victim was Igor Sechin, Putin's right-hand man and the holder of dual posts as deputy prime minister and Rosneft CEO. When the deal went south, Russian President Dmitry Medvedev kicked the corpse (pictured above, neither looks thrilled to be in the other's company) with an order prohibiting Sechin or anyone else from holding a simultaneous position in government and a state-owned company.

Though Medvedev's was a wholly reasonable directive, inRussia conflicts of interest can be a novel and even controversial idea, especially when it regards members of Putin's entourage. So it is that one prominent narrative out there right now is that the whole affair demonstrates not ethics, but Medvedev's political strength -- the rug, Reuters suggests, has been partly pulled out from under Putin. Medvedev's purge of Putin's allies at state-owned enterprises, it is said, is all part and parcel of Medvedev and his own allies preparing him for a run at re-election next year.

We have two things going on at once. One is that BP's Dudley wholly misunderstood Russia's apportionment of power (That's not a categorical black mark, because so did Sechin.). In this video, the Financial Times' perspicacious John Authers and Vincent Boland say that the Rosneft fiasco is as bad for BP as was last year's Gulf of Mexico oil spill. Dudley had perceived a company saver, but instead derived yet another symbol of BP's executive mismanagement. Now, not only does BP seem unlikely to capture prize Arctic acreage, but Dudley has seriously annoyed his Russian partners in the TNK-BP partnership, which comprises a full quarter of BP's total global reserves.

BP cannot afford to jeopardize the partnership. It is very simple. Unless Dudley gets his Russian affairs under control by a Thursday deadline, both BP and he -- emphasis on the latter -- are in real trouble. Chris Weafer, the uber-analyst at UralSib Bank, expects a deal to be cut, if not voluntarily by the principals in the deal, then by force -- that's how important the stakes are."There will be a lot more pressure applied this week," Weafer wrote in a briefing he emailed me, "and if no agreement is reached by Thursday, then [there will be] direct intervention by the state." But if these steps still don't work, among the dangers, some say, is that again BP risks a hostile takeover. This piece from the Daily Telegraph in London suggests that former BP CEO Tony Hayward may lose his current position as a board member at TNK-BP. But the biggest news right now is that Dudley could lose his job. So poor has his judgment and execution been. Read on for the Russian political angle.

The uprising tax: Continue to look for Saudi Arabia to dutifully police the price of oil, but the arm of the law will come down a little more leniently -- when oil is at $100 a barrel and above. Call it the Uprising Tax. Because of all the trouble stretching from the Magreb across to Oman, Saudi King Abdullah and the rest of the ruling family are worried about potential trouble at home. To avert that, they have bestowed $130 billion in largesse on the populace in the form of various giveaways. But how to pay for all this generosity, you might ask. The answer is oil revenue. But the price has to be higher than the $68 a barrel that previously resulted in a balanced Saudi budget, according to the Financial Times' Michael Peel and Javier Blas. Now, oil must be at $88 a barrel, plus a margin for error, hence justifying the $107.94 a barrel price at which oil closed today. And four years from now, oil must cost at least $110 a barrel.

 

Challenging times for Darth Vader: Is Igor Sechin -- aka Darth Vader, the right-hand man to Vladimir Putin -- truly in trouble? The news out of the Kremlin would have us believe so. President Dmitry Medvedev has issued an order stripping Sechin (pictured above with Putin) of his post as chairman of Rosneft, the Russian state oil company. Skeptics suggest that the jury is out whether the dismissal takes effect, or even if it does, whether Sechin can be held back from continuing to exercise effective control, given his relationship with Putin, Russia's most-powerful political figure. Whatever the case, we are specifically interested at the moment because of how Sechin's fate is interwoven with BP's.

As you recall, the geopolitical impact of last summer's Gulf of Mexico oil spill was that BP -- on the outs in the United States -- got into bed with Russia in a big way. In January, BP CEO Bob Dudley did a deal with Sechin in which Rosneft would own 5 percent of BP's shares, BP would own 10 percent of Rosneft's, and the two companies together would explore the granddaddy of Russia's remaining oil mother lode -- the Arctic Sea bed. This narrative has fallen apart as two European tribunals have ruled that BP violated a pre-existing marriage -- a partnership called TNK-BP, which holds rights of first refusal for any deals on Russian soil involving BP. How did Dudley -- who had a previous bad experience with the very same Russian oligarchs behind TNK-BP -- commit such a blunder? And why wasn't Sechin himself able to head off any number of indignant Russian oligarchs? Read on for more about BP, Sechin, and the Wrap.

BP's new tie-up with state-owned Russian oil company Rosneft tracks back to a tension-filled 2008 power struggle in which Rosneft Chairman Igor Sechin (pictured above with Vladimir Putin) engineered the scuttling of a similar arrangement with rival Russian gas giant Gazprom, according to new WikiLeaks cables.

The backdrop to the cables is a long-standing management spat between BP and four Russian oligarch partners in a company called TNK-BP. Essentially, BP sought to build up TNK-BP as a largely or solely Russia oil company, while the Russian partners wished to branch out abroad including to countries to which BP objected such as Cuba, Burma, and Sudan, according to a cable filed June 20, 2008, by the U.S. Embassy in Moscow. All of this was accompanied by the usual Russian orchestra of government inspectors of all sorts, the cancellation of visas, vague personal threats and bad press.

How were the Russian oligarchs able to carry all of this off given that none of them was a government figure? The suggestion in the cables is with the connivance of Sechin, the third most-powerful man in Russia, who seriously objected to BP's dalliances with Gazprom, another power center in the country.

Why is BP getting grief in the United States and Great Britain over its $7.8 billion share swap with Rosneft? Because 1) Since Winston Churchill, BP has been a strong, sometimes pivotal influence on British foreign policy; 2) For much of 1990s, BP was something of a lapdog for Russian oil policy - that was before it switched horses in order to gain U.S. approval of its 2000 purchase of Arco; and 3) It could revert.

That said, one of the most surprising aspects of the deal is not that BP could again argue Russia's debating points and say they are Western, but the inattention paid to another fairly material outcome of the deal, which is the likelihood that Deputy Prime Minister Igor Sechin will join BP's board.

BP CEO Bob Dudley said the two sides never discussed board representation in their deal discussions, but Rosneft CEO Eduard Khudaintatov says they will, according to Interfax. And there is almost no possibility that state-owned Rosneft has bought 5 percent of a western oil major without the intention of backing up its investment with a seat on the board; there is about the same probability that the person who sits in that seat will be Sechin, Rosneft's chairman and Prime Minister Vladimir Putin's hand-picked chief energy hand.

If this happens, what will it mean to have Sechin on one's board?

For one thing, it means the Kremlin is on your board, according to an excellent Sechin profile in June by the Financial Times' Charles Clover, David Gardner and Catherine Belton. They call Sechin "the third man," because he is the third most-powerful individual in Russia, just under Putin and President Dmitry Medvedev. A 2009 profile of him by Forbes' Heidi Brown started out this way: "He's been depicted as Darth Vader in the Russian press and described as "'the scariest person on Earth.'"

But the FT's Clover and gang argue that Sechin may have changed. As the global financial crisis again demonstrated the fragility of Russia's economy, Sechin is being a lot friendlier and accommodating, according to these FT writers. That is the Sechin whom BP executives describe when they talk about this deal. As the FT wrote:

For men such as Mr. Sechin, who came to power with Mr. Putin and -- driven by an obsession with security and jealous of national status -- oversaw Russia's resurgence from the prostration of the 1990s, the situation has changed. The battle now is the rebranding of Russia, as both an assertive international player and a reliable partner for the west.

Yet, on the side of caution, we've seen this movie before. Russia became much more prickly as oil prices rose from 2006 to 2008, and often Sechin was the face of that prickliness. Sechin's signature action was overseeing the 2006 state seizure and dismantlement of Yukos, which at the time was regarded as perhaps the top oil company in Russia, and providing its best oilfields to Rosneft, where he then became chairman. Those choice morsels are what made Rosneft attractive to BP (which like the British Museum does not pay much attention to the provenance of its riches). From a company worth perhaps $8 billion, Rosneft became an $80 billion behemoth after the Yukos affair.

In terms of turning over a new leaf, just in October, Sechin accompanied Medvedev to Ashgabad, and proceeded to drive a final stake into the heart of the Turkmen-Russia relationship with his thuggish manner of speaking, as we discussed last week.

Sechin is said to recognize that he has to be nicer. But when he sits on BP's board, he will be looking out for Russia's interests. The question is whether they will coincide with BP's.