In April 1990, five months after the fall of the Berlin Wall, John Browne sat in a car outside the oil and gas ministry in Moscow eating a McDonald’s hamburger.

The Soviet Union was unravelling after decades of communist rule. Browne, then a senior executive at BP, the oil company he would later run for 12 years, was in town to speak to anyone he could about investment opportunities behind the Iron Curtain.

The car’s windows fogged with condensation as his team marvelled at the day’s conversations. Russia’s natural resources, which include some of the world’s biggest reserves of oil and gas, still remained the sole property of the state but the system was creaking. Vagit Alekperov, a deputy minister, had just told Browne that he intended to set up an oil company and asked if BP wanted to be involved.

“We’ll give it some assets to start with,” Alekperov said, according to Browne’s memoir, Beyond Business. “Basically some of the assets that I’m now controlling as a minister.”

BP never invested in Alekperov’s company. It was formed 18 months later from three state-owned businesses and is now known as Lukoil, one of the world’s largest oil companies.

The meeting marked the start of a 32-year relationship between BP and Russia that lit the way for many of the other western oil companies, investment banks and service providers that would follow.

“It was very clear after the fall of the Berlin Wall that something was happening and we needed to be part of it,” Browne tells the FT.

Fuel prices are seen on a display at a BP service station, near a McDonald’s logo, in Moscow
Dozens of western corporations, including Shell, Coca-Cola and McDonald’s, have followed BP’s lead in making plans to cease operations in Russia © Andrey Rudakov/Bloomberg

Over the next three decades BP was at the forefront of a western push into Russia. It faced court setbacks and dawn raids, suspicion and intimidation, but would ultimately make the single most profitable investment in its history — a deal that helped transform BP into the global energy player it is today.

Then suddenly it was over. On February 27, three days after Russian troops invaded Ukraine, BP announced it would divest its 19.75 per cent stake in the Kremlin-backed oil producer Rosneft, launching what has become arguably the biggest corporate exodus from any market in history.

In the weeks since, dozens of western corporations — from Shell to Coca-Cola to the McDonald’s chain that served Browne the hamburger — have made plans to cease or suspend operations.

Among the first in and the first out, BP’s journey in Russia tells a story that is more than the corporate history of a single oil company. It’s a story of the west’s urgent courtship of Russian business; a story of the opening up and closing of one of the world’s most resource-rich economies to foreign investment; a story of oligarchs, power and profits.

The big new frontier

BP opened an office in Moscow in 1990 and in the years that followed Browne visited regularly, shuttling on old Soviet helicopters between the capital and remote Siberian oilfields, weighing up how and where to make BP’s first move.

President Boris Yeltsin’s efforts to dismantle the communist system had sent the economy into freefall. Inflation soared and the value of the rouble collapsed. But the oil and gas opportunity was tantalising.

Russia had roughly 7 per cent of the world’s oil, a third of global gas and under-investment had meant production levels were falling. BP executives who travelled to Russian oilfields in the 1990s say equipment was rusting, technology outdated and geological understanding rudimentary.

Having lost almost all its access to Middle Eastern oil in the 1970s after governments in the region nationalised their resources, the oil sector saw Russia as the new hope.

“It was the big new frontier with massive resources,” says one former BP executive who visited Russia in the 1990s. “The world was changing, the question was how do you position for it?”

After struggling to secure exploration or production acreage, BP set up a chain of petrol stations in 1996, before paying $571mn in 1997 for a 10 per cent stake in Sidanco, a Russian oil producer run by oligarch Vladimir Potanin.

Like many so-called oligarchs who made much of their wealth through the privatisation of Russian natural resources in the 1990s, Potanin had secured control of Sidanco through the controversial loans-for-shares scheme, in which politically-connected business figures acquired stakes in state-owned companies at rock-bottom prices.

“At the time, if you wanted to be in Russia in a big existing resource play you were working with an oligarch — choose your oligarch,” says the former BP executive.

BP’s 32 years in Russia

1990

BP opens an office in Moscow and begins seeking opportunities

1996

BP opens a chain of petrol stations in Russia

1997

BP takes a stake in Russian oil producer Sidanco; within two years it would start to unravel

2003

BP puts $8bn into a joint venture with Mikhail Fridman’s TNK, then the biggest ever foreign investment in Russia

2011

BP signs a deal with Rosneft to explore opportunities in the Arctic but it falls apart after TNK’s oligarch owners cry foul

2013

BP exits its joint venture with TNK in return for $12bn in cash and a stake in Rosneft

2014

Rosneft is sanctioned by US and EU after Russia annexes Crimea, but BP stands by investment

2022

BP announces plans to divest completely from Rosneft and exit Russia

Within two years the deal had begun to fall apart. An obscure court in a remote Siberian city declared Sidanco’s most profitable oil and gas asset bankrupt, whereupon it was sold to the Tyumen Oil Company, known as TNK, controlled by a second oligarch, Mikhail Fridman.

By then BP had lost more than $200mn from its original investment, Browne estimates in his memoir. But, rather than walk away, he raised his stake, acquiring a further 15 per cent in 2002. Finally in 2003, after four years of brinkmanship, Browne and Fridman agreed to form a new 50:50 joint venture, combining TNK and Sidanco’s assets with BP’s petrol stations in return for an $8bn investment from BP.

“It was a classic John Browne move,” says another former BP executive. “Complete conviction, double down, stay the course.”

The deal at the time was the biggest ever foreign investment in Russia and marked the most significant step in the recalibration of commercial relations between Russia and the west.

Vladimir Putin had been elected president in 2000 and UK prime minister Tony Blair was keen to build British influence and access in Moscow.

Mikhail Fridman, the head of British-Russian oil venture TNK-BP, leaves a press conference in Moscow
Mikhail Fridman once controlled Tyumen Oil Company. In 2003, BP and TNK formed a 50:50 joint venture, combining TNK and Sidanco’s assets with BP’s petrol stations in return for an $8bn investment from the UK oil group © natalia Kolesnikova/AFP/Getty

Far from a would-be dictator, Putin was then seen as “the new broom who would sweep everything out, the big reformer,” says Browne.

The Russian president came to Britain on a state visit in June 2003, where he was escorted to Buckingham Palace by the British cavalry and welcomed with a 41-gun salute. At a lavish state banquet, he gave a rare speech in English, in which he emphasised the need for the UK and Russia to work together. The TNK-BP deal was signed in front of Putin and Blair three days later.

“It fitted the geopolitical moment,” says Tony Hayward, who worked on the deal and succeeded Browne as BP chief executive in 2007. “Through the 2000s there was definitely a sense in the west that Russia could be brought ever closer into the fold.”

A complicated relationship

BP was not alone. ExxonMobil drilled its first well at a vast oilfield in Russia’s far east in 2003 and began exports in 2006. A $20bn joint-venture between Shell, the Japanese groups Mitsui and Mitsubishi and later Gazprom, signed a production sharing agreement with Russia in 2004 and began exporting oil in 2008.

For BP, the TNK partnership was lucrative but complicated. BP saw the business as its Russian subsidiary, while Fridman and the two other oligarch shareholders — Viktor Vekselberg and Leonard Blavatnik — wanted more control.

Bob Dudley, then chief executive of BP, left, speaks with Igor Sechin, chairman of Rosneft, at the St Petersburg International Economic Forum in 2017
Bob Dudley, then chief executive of BP, left, speaks with Igor Sechin, chairman of Rosneft, at the St Petersburg International Economic Forum in 2017 © Andrey Rudakov/Bloomberg

After one fraught period in 2008, Bob Dudley, the BP executive then heading the venture, even fled the country citing “sustained harassment”. Dudley had become so anxious about his safety that his departure was kept secret until he was safely on a plane.

Problems flared again in 2011 after BP, now under Dudley’s leadership, signed an Arctic exploration and share-swap deal with Rosneft, the oil giant whose then chairman, and now chief executive Igor Sechin is one of Putin’s closest allies.

TNK-BP’s oligarchs said the agreement violated their rights as the exclusive vehicle for BP’s Russian ventures, and had the deal blocked in international courts. BP’s Moscow offices were raided by black-clad special forces and Exxon swooped in to replace BP as Rosneft’s Arctic partner. Dudley did not respond to a request for comment.

Putin had never liked that the TNK-BP joint venture was 50:50, rather than Russian-controlled, and it was increasingly clear that Rosneft would be the vehicle he used “to roll up oil assets”, says one of the former BP executives.

Column chart of Dividends ($bn) showing BP reaped billions from its Russian partnerships

“Oil and gas has always been Putin’s calling card, when he goes anywhere the first thing he wants to talk about is oil and gas,” says one industry figure who has met the former KGB agent several times. “One could never tell what he was thinking, expressionless, the perfect spy,” the person added.

In 2013, Putin got what he wanted. BP completed a complex deal in which it received $12bn in cash and 18.5 per cent of Rosneft in return for its half of TNK-BP.

Dudley celebrated the deal as a “historic day for BP in Russia”. But while many analysts agreed that it was a profitable resolution to what had become a very hostile situation, others were surprised BP had not sought to exit completely, choosing instead to remain as a powerless minority-shareholder in a state-backed company.

It was certainly profitable. The cash payment added to roughly $19bn in dividends BP had received from TNK-BP since 2003. “It was probably the best investment BP has ever made,” says one executive involved in the original TNK-BP deal.

Between 2013 and 2022, BP’s Rosneft equity stake generated a further $5bn in dividends and bolstered the oil production and profits BP was able to report each year. But as the west’s relations with Russia began to deteriorate and, more recently, as BP sought to shift its strategy towards a lower emissions future, the Rosneft relationship became more problematic.

“For the past 18 years, I don’t think I’ve been in a meeting [about BP] where an investor hasn’t said to me, ‘OK sounds interesting as an investment thesis but what about the Russian risk?’” says Oswald Clint at Bernstein, who has covered the oil and gas industry since 2004.

After Russia annexed Crimea in 2014, Rosneft was targeted with US and EU sanctions designed to stymie its future growth and most western oil companies’ enthusiasm for Russia cooled.

Even Exxon, whose chief executive Rex Tillerson had been given the prestigious “Order of Friendship” medal by Putin, put a halt to many of its plans.

“Since 2014 either activity has been pretty stagnant or people had already been pulling back,” says James Henderson, a Russia expert at the Oxford Institute of Energy Studies who is writing a book on the history of Rosneft.

However, BP stood by its investment, even after Bernard Looney replaced Dudley as chief executive in 2019 and launched a new strategy to cut BP’s oil production by 40 per cent by 2030. Both men sat on the Rosneft board until last month. Divestment “wasn’t seemingly on the cards”, says Clint.

Russian President Vladimir Putin, second right, presidential aide Yuri Ushakov, third right, Igor Sechin, Rosneft chairman, right, and Bob Dudley, BP chief executive, second left, attend a meeting at the Kremlin in Moscow in 2019
Russian President Vladimir Putin, second right, presidential aide Yuri Ushakov, third right, Igor Sechin, Rosneft chairman, right, and Bob Dudley, BP chief executive, second left, attend a meeting at the Kremlin in Moscow in 2019 © Mikail Klimentyev/Kremlim/Reuters

In early February, as the US warned of a Russian invasion, Looney told the FT he was not worried about potential disruption of the Rosneft relationship. “That doesn’t mean that we don’t do risk management . . . and contingency planning . . . but, you know, my view is nothing has happened.”

Whereas Browne had met regularly with Blair before and after the TNK-BP deal, Looney said he had not been approached by the UK government for any assistance on Russia. If he had been asked he would have had little insight to offer, he added. “It’s not an area of interest for me,” he said. “We have a business relationship and that’s what I genuinely want to focus on.”

Indeed, divesting the Rosneft stake had never seriously been considered by BP, according to people familiar with senior executives’ thinking in recent years. Looney did not immediately join the Rosneft board when he became chief executive, but only because he was required to wait for Rosneft’s annual general meeting to do so, the people added. BP declined to comment for this story.

End of an era

When Russian tanks rolled across the Ukrainian border on Thursday, February 24, everything changed.

Looney called a board meeting on Friday morning, where it was agreed that BP would immediately review the financial, legal and fiduciary implications of divestment.

Later that day Looney had a video call with Kwasi Kwarteng, UK business secretary, on which the minister expressed his concern over BP’s Russian connections and whether Rosneft diesel was fuelling Russian tanks. Looney revealed little of BP’s plans, says a person close to the minister. “He did a lot of nodding and saying ‘yes. yes, yes, yes’.”

The board reconvened on Sunday and chair Helge Lund announced BP’s exit hours later. In three days BP had decided to pull the plug on three decades of business, in a move that could cost the energy major up to $25bn.

Within 24 hours rival Shell had followed BP out of the door, pledging to end its joint ventures with state-owned Gazprom, before Exxon joined them a week later.

Three men operate drilling equipment on a rig at Rosneft’s Lebedinskoye oil field in the Okhotsk sea
Drilling at Rosneft’s Lebedinskoye oilfield in the Okhotsk sea. In February this year a UK cabinet minister expressed concern over BP’s Russian connections and whether Rosneft diesel was fuelling Russian tanks © Rosneft Handout/EYEPRESS/Reuters

What happens next is less certain. Russia has temporarily banned foreign investors from selling their assets, but finding buyers while the war rages and sanctions intensify was anyway unlikely.

It’s possible that Russia could expropriate BP’s stake. Putin’s United Russia party has also put forward a bill to nationalise assets of foreign firms from “unfriendly states,” including the UK. If not, BP could also walk away and write off the value of the stake completely, sell it back to Rosneft at a heavy discount, or hope that another buyer materialises.

Analysts and bankers have speculated that China’s state-owned companies might be tempted to step in. But, despite recently signing a “no-limits” partnership with Moscow, Chinese president Xi Jinping is yet to signal how China will respond to the conflict.

Konstantin Simonov, head of the National Energy Security Center in Moscow, says he expects Russia to speed up the construction of gas pipelines to China, boost oil sales to Beijing and lean on existing Chinese co-operation in oilfield services. “It is clear that China will try to take advantage of this situation here, too. There are no illusions,” he says.

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For BP, Shell and Exxon, even if they recoup nothing, the long-term consequences will be manageable. Although they have lost strategic assets, each company has a greater choice of commercial options than ever before, says Bernstein’s Clint. “It’s not just oil any more, it’s the liquefied natural gas, the renewables, the biofuels. There are so many options that it is easier today to cut the umbilical cord.”

Nevertheless, the exits mark the end of an era — “a complete geopolitical reset”, as one former BP executive describes it, that could cut off much of the world from Russian resources, business and culture for a generation.

“Russia was a country that was ready to play,” says Browne, reflecting on its political and business class in the 2000s. “They wanted to play on the global stage, they really did.”

Additional reporting by Jim Pickard in London and Nastassia Astrasheuskaya in Riga



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