In business, trust is never 100% - BP's Lord Browne on Russian deal

The chief executive of BP, Lord Browne of Madingley, conceded yesterday that mistrust and suspicion still exists between the company and its Russian partners over their $14bn oil joint venture.

His comments came as TNK-BP, in which BP has invested $6.8bn for a 50 per cent stake, increased its forecasts for production and reserves.

In a remarkably frank assessment of BP's relationship with Alfa and Access Renova (AAR) , the Russian companies which own the other half of TNK-BP, Lord Browne said: "We continue to build trust and less and less view each other's motives with suspicion." Pressed on whether a residue of mistrust still existed, Lord Browne said: "In business, trust is never 100 per cent."

AAR was BP's original partner in another Russian oil company Sidanco - a partnership which ended in the courts after BP accused its partners of stealing Sidanco's assets. Despite BP's first mover advantage in investing in Russia ahead of rivals such as Exxon, the City remains cautious of the TNK joint venture because of the political risks.

BP shares yesterday fell 6.25p to 426.5p, even though the company forecast a 14 per cent increase in production this year for TNK-BP and said proven and probable reserves could be as high as 31.4 billion barrels.

One of the Russian oligarchs involved in the deal, the chairman of Access Industries Len Blavatnik, said that when the deal was being negotiated, Lord Browne asked his would-be partners: "Are you going to take the money and run?" Mr Blavatnik said he replied: "There is no reason for us to run and every reason for us to stay and make more money."

His fellow oligarch, the chairman of Renova, Victor Vekselberg, confided that when the deal was being brokered, the key issue for BP was corporate governance, adding: "One of the most important issues for me was price."

Under the shareholders' agreement with BP, Mr Vekselberg, Mr Blavatnik and Mikhail Fridman, the chairman of Alfa and also of TNK-BP, cannot sell their stakes until the end of 2007. But after that they are free to unload their holdings and BP has no automatic right to buy any shares they choose to sell.

Mr Vekselberg said he and his fellow Russian oligarchs were "reasonable, business-minded people" and the reason they would not sell out was because oil was Russia's most attractive investment.

BP said that under US rules, TNK-BP's proven reserves were now estimated at 4.1 billion barrels against 3.2 billion when the joint venture was announced. Under a different set of rules, that estimate rose to 9.4 billion barrels whilst an additional 21 billion barrels had been discovered. The joint venture will account for some 15 per cent of BP's total production and 3 per cent of capital employed. It will boost BP's profitability at oil prices of more than $16 a barrel but Lord Browne disclosed it would only produce a meaningful return on capital at oil prices of $29 or more.