WikiLeaks / Cablegate: Is BP Arctic Drilling Deal Motivated by Putin’s Profits?

The complex, but ultimately profit-motivated deal that is being struck between oil giant BP, and the even larger Russian energy company Rosneft, raises all sorts of questions as to why a Western company has so easily been allowed to slip into the role of joint exploiter of one of the last remaining pristine ocean habitats. BP are clearly delighted with the opportunity to brutally despoil yet another expanse of water:

BP and Rosneft announced today that they have agreed a groundbreaking strategic global alliance.

Rosneft and BP have agreed to explore and develop three license blocks – EPNZ 1,2,3 – on the Russian Arctic continental shelf. These licences were awarded to Rosneft in 2010 and cover approximately 125,000 square kilometres in a highly prospective area of the South Kara Sea. This is an area roughly equivalent in size and prospectivity to the UK North Sea.

BP’s chief executive, Bob Dudley, said: “This unique agreement underlines our long-term, strategic and deepening links with the world’s largest hydrocarbon-producing nation. We are very pleased to be joining Russia’s leading oil company to jointly explore some of the most promising parts of the Russian Arctic, one of the world’s last remaining unexplored basins. Underpinning this alliance is a new type of relationship based on a significant cross-shareholding, and bringing together technology, exploration and safe and responsible field development skills. We are very pleased to welcome Rosneft as a strategic partner and major shareholder in the BP Group.”

Later on in the BP article, it is stated that “the aggregate value of the shares in BP to be issued to Rosneft is approximately $7.8bn” – the equivalent amount presumably being transferred from Rosneft to BP. Historically, Russian corporations have undergone almost no environmental scrutiny from the Russian state, so less cynical observers might conclude that there would be a little more openness to these operations with BP involved. More cynical observers might suggest that with partial ownership of BP transferred to Russia, there would be a case for even more secrecy within BP’s books (with Russian help).

No one really knows, but there are two points that are clear:

1) When the drilling starts, the Arctic will become more polluted than it is now;
2) Some people are going to make an awful lot of money out of this.

A diplomatic cable from the US Russian Embassy sent in 2008, makes the following (redacted) points:

ID: 08MOSCOW2632
SUBJECT: XXXXXXXXXXX
DATE: 2008-09-03 13:01:00
CLASSIFICATION: CONFIDENTIAL
ORIGIN: Embassy Moscow


C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002632

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR FREDRIKSEN, HEGBORG, EKIMOFF

EO 12958 DECL: 09/02/2018
TAGS EPET, ENRG, ECON, PGOV, PHUM, RS

SUBJECT: XXXXXXXXXXX
TRANSPARENCY

Classified By: DCM Eric S. Rubin for Reasons 1.4 (b/d)
-------

SUMMARY
-------

1. (C) XXXXXXXXXXX is seeking information about the companies’ relations with shadowy and reportedly Kremlin-connected oil trader Gunvor. XXXXXXXXXXX he just wants to shed light on the fundamental need for transparency in Russia, where no one seems to care about “massive corruption.” XXXXXXXXXXX End summary

-------------------------
“TOTALLY NON-TRANSPARENT”
-------------------------

2. (C) A primary and very large hurdle for those who analyze Russia’s oil and gas sector is the dearth of reliable information. News reports abound of large business transactions related to little-known companies and involving undisclosed sums. This lack of transparency is often discussed, but is seldom officially challenged. XXXXXXXXXXX

3. (C) XXXXXXXXXXX. Both XXXXXXXXXXX told us that the rising and reportedly massive volumes of trade through secretive Swiss-based oil trading firm Gunvor were the genesis of the cases against ROSNEFT, Gazpromneft, and Surgutneftegaz. This trade was resulting in reportedly very large profits for Gunvor and its secretive ownership, which is rumored to include Prime Minister Putin.

4. (C) XXXXXXXXXXX said he believes that XXXXXXXXXXXX and he is frustrated that nobody in Russia seems to care. According to XXXXXXXXXXX and XXXXXXXXXXX, Gunvor has risen quickly to become the top trader of Russian oil exports, now responsible for up to 50% of the total. He is seeking information from the companies about their relationships with Gunvor: trading volumes, the general terms of the contracts, and how this particular trading company was selected by the oil companies. The companies, have stonewalled -- their relations with Gunvor are &totally non-transparent,” XXXXXXXXXXX complained.

5. (C) XXXXXXXXXXX XXXXXXXXXXX Transneft, the primarily government-owned oil transportation monopoly. XXXXXXXXXXX information related to 13 billion rubles ($530 million) that the company reportedly donated to “charity” in the last two years. According to XXXXXXXXXXX, the company gave more to charity than it spent on pipeline repair and maintenance or paid out in dividends. However, the company has refused to disclose any information related to its charitable contributions, including the names of the beneficiaries.

6. (C) XXXXXXXXXXX

---------------------------------------------
WHO OWNS RUSSIA’S FOURTH LARGEST OIL COMPANY?
---------------------------------------------

7. (C) Of the companies XXXXXXXXXXX one stands out for its secrecy -- Surgutneftegaz. As with Gunvor, the company is rumored to be one of Putin’s sources of undisclosed wealth. No one knows who the ultimate beneficiaries are of the company, XXXXXXXXXXX “Can you believe,” he told us, “that no one knows who owns Russia’s fourth largest oil company?” XXXXXXXXXXX told us that he personally does not believe Putin owns either Surgutneftegaz or Gunvor since the Prime Minister does not really need to have a direct link to an asset to benefit from it.

----------

While it is not possible to conclude who has shares in Rosneft, President Putin certainly has not been shy in sharing in the acclaim of the deal with BP. If indeed Putin, and other senior Russian government officials, do own shares (bonds) in Rosneft, then it would be financially advantageous for their own shares to be exchanged – invisibly – with BP shares, given the expected growth in BP share prices. As the following extract from a separate cable explains:

Greed will tend to push those who have
accumulated SHARES in state companies towards share
cash-outs, just as it will push those who have accumulated
"private" cash abroad to buy back into Russia's safest
investments. Rosneft is a perfect example. We are watching
to see who in the government argues the loudest for Rosneft's
further privatization -- they more than likely stand to
benefit from either the sell or the buy opportunity.

----------

That “further privatization”, predicted in 2007, has been achieved with this deal. The outcome is as predictable as profits and pollution.

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