Overview

TNK$-$BP is a joint venture $($JV$)$ company that is $50\%$ owned by the AAR consortium, which represents three major Russian business groups: Alfa, Access, and Renova. Founded in $2003,$ TNK$-$BP is a major oil company. It is Russia$$s third largest oil producer and among the ten largest private oil companies in the world. It produces almost $1\mathrm{.}9$ million barrels of oil every day and provides about $25\%$ of BP$$s oil production and $40\%$ of its reserves. It pays about $$2$ billion dividend each year to BP$.$ Despite being a cash cow, TNK shares an uneasy relationship with BP$.$

Two episodes have been cited by TNK to emphasize their unhappiness with BP$.$ In $2008,$ the Russian partners publicly aired two grievances. First, TNK$-$BP relied on too many BP$$s expatriate $($expat$)$ consultants, whose fees were a $$rip off$$extra dividends to BP but excessive costs to TNK$-$BP$.$ Second, and more importantly, the Russians wanted TNK$-$BP to pursue opportunities outside of Russia and Ukraine, but BP insisted on fencing TNK$-$BP within Russia and Ukraine to prevent TNK$-$BP from becoming a global competitor.

This disagreement led to a number of unpleasant episodes. The visas of $148$ expats working at TNK$-$BP were declared invalid. The Moscow offices of both BP and TNK$-$BP were raided by the policy and a TNK$-$BP manager was arrested for alleged espionage. According to Fridman $($founder of the Alfa Group and chairman of the board of TNK$-$BP$),$ this entire fiasco could be attributed to BP and that BP treated TNK$-$BP as if it were a wholly owned subsidiary instead of a JV$.$ In the end, a compromise was arrived between the two warring companies$$the Russians needed BP$$s expertise and BP needed to access TNK$-$BP$$s crude oil in Siberia.

The second episode took place only two months after the ending of the first one. In January $2011,$ BP announced a new $$16$ billion strategic alliance with Russia$$s state$-$owned Rosneft. Creating the first cross$-$shareholding alliance between international and Russian oil companies, the deal would enable BP to own $9\mathrm{.}5\%$ of Rosneft$$s shares and Rosneft to own $5\%$ of BP$$s shares. Both sides would jointly explore a new offshore oil field on the Russian Arctic continental shelf in the Kara Sea. Rosneft is Russia$$s second largest oil company, which produces $2\mathrm{.}4$ million barrels of oil a day. This new alliance had the full support of the Russian government but not TNK$-$BP$$s who sought to block the deal. Their argument was that per the TNK$-$BP JV agreement, BP could only pursue further business in Russia through their JV$.$

AAR$$s claim was vindicated by a Swedish arbitration tribunal and BP admitted its mistake and reaffirmed that it remained committed to TNK$-$BP as its $$primary business vehicle in Russia.$$ But BP$$s problems did not abate. Through this exercise it managed to alienate both the Russian government and Rosneft which struck a new alliance with Exxon Mobil.

BP weakened by the second episode, continues to share an uneasy relationship with TNK$-$BP which managed to gain more power than its partner.

Questions:

From an industry$-$based view, explain why alliances are a frequent mode of entry for the oil industry in Russia.

From a resource$-$based view, what are the complementary resources and capabilities both sides brought to TNK$-$BP$?$

From an institution$-$based view, what are the formal and informal rules of the game governing this industry in Russia?

As an ethics consultant to BP$,$ how would you advise it during both episodes of the conflicts with AAR $($Use the first person for this question.$)?$