TNK-BP UPDATE: CFO LEAVES DUE TO ONGOING DISPUTE

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002273



SIPDIS



DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT

EUR/CARC, SCA (GALLAGHER, SUMAR)

DOE FOR FREDRIKSEN, HEGBORG, EKIMOFF

DOC FOR 4231/IEP/EUR/JBROUGHER



E.O. 12958: DECL: 08/06/2018

TAGS: EPET, ENRG, ECON, PREL, PINR, RS

SUBJECT: TNK-BP UPDATE: CFO LEAVES DUE TO ONGOING DISPUTE



REF: MOSCOW 2237



Classified By: Econ MC Eric T. Schultz for Reasons 1.4 (b/d)



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SUMMARY

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1. (C) TNK-BP CFO James Owen resigned on August 4, citing the

on-going dispute (reftel) over control of the company as

hampering his ability to perform his job. TNK-BP's chief

strategist, Kris Sliger (protect),told us August 5 that he

doesn't think a new CFO would be named soon given the

difficulty in attracting the right person into the company at

this time and the need for both sides to approve the

selection. Sliger also said CEO Bob Dudley is unlikely to

return and in any event may face additional charges of labor

code violations that could see him "suspended" from his role

by the labor authorities. Meanwhile TNK-BP's woes continue

to weigh on already declining investor confidence in Russia.

End summary.



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CFO: "I DON'T NEED THIS."

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2. (C) Sliger told us that Owen announced his resignation

from TNK-BP relatively unexpectedly. According to Sliger,

Owen had explained to Sliger the day before that he was

leaving because the gap between the two sides in the on-going

dispute is "too wide," a settlement "too far off," and, at 61

years-old, "I don't need this." Sliger said that as CFO,

with his signature on the company's key financial documents

and disclosures, Owen was putting himself personally on the

line with various regulatory agencies. Sliger added that

Owen had worked with AAR partners German Khan and Mikheil

Fridman &long enough to know that's dangerous."



3. (C) Sliger said finding a new CFO in the current climate

at TNK-BP would be difficult and take some time.

Furthermore, per the shareholder agreement, AAR and BP would

need to agree on the choice. He suggested that current

controller Jonathan Muir, an expat employee, might be named

interim CFO and was also a potential permanent replacement.

Sliger described Muir as having "impeccable integrity."

Without a new and fully empowered CFO, however, asset

stripping at TNK-BP may gain momentum. As reported in the

press, a BP spokesman put it this way -- "what you've got now

is the biggest two foxes with an even freer rein to eat the

chickens."



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FUTURE OF THE COMPANY

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4. (C) Sliger, who has been with the company since its

founding and helped put the original deal together, sees

"about a 30% chance" at a resolution preventing arbitration.

"And to get there, we would have to engage in trench warfare

with mustard gas." He said CEO Bob Dudley, will have

difficulty managing the company from abroad and is unlikely

to return to Russia as TNK-BP's CEO. He added that Dudley

might also face additional charges of labor code violations,

which would allow the labor authorities to temporarily

suspend him from his post.



5. (C) Sliger said AAR partners Fridman and Viktor Vekselberg

want to get as much money as they can out of TNK-BP, but that

Khan is "certifiably deranged," and wants control of the

company that he believes he has built. According to Sliger,

the Russian partners simply do not understand how modern

corporations work, and thus do not appreciate the

implications of their actions for TNK-BP. As long as TNK-BP

can continue to pump oil and gas, the Russians will believe

all is well. However, what they fail to grasp, Sliger

explained, is that the departure of the expats will effect

the company's performance. The CFO's departure, for example,

will lower the quality of company audits, thus raising

uncertainties and risks for lenders, and thus raising the

cost of capital for the company.



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MOSCOW 00002273 002 OF 002





COMMENT

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6. (C) The Russian stock exchanges have lost more than a

quarter of their value since mid-May, much of it in the last

few weeks. TNK-BP's woes have contributed to this,

highlighting the uncertainties and risks related to doing

business here. End comment.

RUBIN