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July 28, 2008 1:15 PM

TNK-BP Dispute Advisers Line Up

Posted by Richard Lloyd

Given the billions of dollars in oil wealth at stake, it’s not surprising that the two sides in the ongoing dispute between oil major BP plc and the Russian shareholders in the joint venture BP-TNK have assembled a lengthy cast of legal advisers.

So far on the BP side it's regular counsel Linklaters and Russian local firm Egorov Puginsky Afanasiev & Partners. The four Russian oligarchs that own the other half of the joint venture have lined up Cravath, Swaine & Moore to handle U.S. litigation and U.K. firms S.J. Berwin and Lovells to handle matters in London and Moscow, as well as Swedish firm Vinge.

Herbert Smith has also picked up an assignment to advise the BP-TNK joint venture, including the management team led by CEO Robert Dudley.

In the dispute, which began in March, the Russian oligarchs, a consortium known as Access Alfa Renova (AAR), are demanding that the senior management of TNK-BP, including Dudley, be replaced and that higher dividends be paid to shareholders. AAR president Stan Polovets has told the press that "everything we've proposed in the last couple of months has been ignored or shut down by BP. They've pushed us into a corner and given us no choice but to be more proactive and aggressive."

"This case is not about a shareholder dispute as the AAR would like it to be portrayed," says Dimitry Afanasiev of Egorov Puginsky. "This case is about an attack on the rule of law in Russia by certain people who call themselves Russian but whose actions discredit Russia. A distinction should be drawn between these people and the Russian Federation, and we are confident that the Russian Federation will ensure that justice is finally done."

In a dramatic twist, Dudley left Russia last Thursday, days before his temporary work visa was set to expire, as BP claimed that AAR-orchestrated harassment had prevented him from fulfilling his duties. BP is also clearly intent on playing hardball with the AAR quartet, filing a claim against them at the end of June in London’s high court over £181 million in alleged unpaid taxes. Linklaters will face Lovells over that dispute. Both sides have also raised the possibility of bringing arbitration proceedings in Stockholm, since the original shareholder agreement between BP and TNK named the Swedish capital as the venue for settling disputes between the two sides.

Drafting one of the leading Russian independent practices could prove to be a smart move by BP. Egorov Puginsky is known for its close connections to the Russian government and has advised it on a number of diplomatically sensitive cases, including the 2004 assassination of a Chechen separatist leader in Qatar by Russian security services.

The joint venture between BP and AAR, a consortium of oligarchs Victor Vekselberg, Len Blavatnik, Mikhail Fridman, and German Khan, was formed in 2003, following the oil major’s acquisition of a 50 percent stake, worth $6.7 billion, in the Russian oil company TNK. The joint venture accounts for one-quarter of BP’s annual production and a fifth of its reserves, and is Russia’s third-largest oil producer.

The case is being closely watched by advisers in Moscow and beyond. “This has been a trend for a number of years, the Russian government has been asserting itself and Russian companies are doing the same,” Brian Zimbler, a partner with Dewey & LeBoeuf in Moscow says. “But I don’t think the Russian government wants to chase BP out of the country. If they did, then believe me, they’d handle this differently.”

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