BP's Russian partners in its joint venture with TNK tightened the screws on the British company to scrap or modify a rival tie-up with state oil group Rosneft by voting against a $1.8 billion dividend payout.
Monday's move could limit BP's scope to increase its own dividend and overshadow its 2010 results on Tuesday, when the company is expected to reinstate its payout, which it canceled at the height of its Gulf of Mexico oil spill last summer.
The vote against the TNK-BP dividend also comes a day before a London court is due to hear TNK-BP's lawsuit seeking an injunction against the BP-Rosneft deal.
The dispute is with shareholders in the AAR consortium -- which owns the other half of BP's Russian TNK-BP venture -- who have reacted angrily to BP's artic exploration deal with rival Rosneft, unveiled earlier this month.
AAR wants TNK-BP to remain the prime vehicle of BP's operations in Russia and Ukraine. Its case will be heard in London on Tuesday, when Rosneft also reports full-year results.
BP said it needed its Russian TNK partners' approval to form the Rosneft joint venture but added it was still some way off incorporating the unit, suggesting that an injunction might have little practical impact.
BP still hoped to settle the dispute amicably. We will sort this out between us and them in due course, a spokesman said.
AAR's board voted to withhold the payment of TNK-BP's fourth quarter dividend which had been due in February. But such a cut should not in the short term preclude BP restarting payments, analysts said, as its finances are in robust shape and the dividend is only half the level it paid out pre-disaster.
The company sold off a big chunk of assets after the U.S. spill and its underlying earnings are underpinned by oil prices at around $100/barrel.
However, a long-term cut to the TNK-BP payout could limit BP's scope for raising its own dividend over time. It relies on the Russian joint venture for a quarter of its production, although high Russian taxes mean the company only gets 10 percent of profits from TNK-BP.
Beyond blocking the BP-Rosneft deal, the motives of the AAR partners remain difficult to fathom. They may want a piece of the action in the Arctic or concessions from BP, such as access to upstream ventures outside Russia.
They may also be seeking to maximize the value of their investment if it is ultimately to be folded into the Rosneft-BP partnership, banking and industry sources suggest.
Shares in BP were flat at 487.1 pence at 1134 GMT, broadly in the line with London's blue-chip FTSE index.
It's not surprising the Russian partners are upset, it's going to be an issue for some time and it's not clear how it's going to be resolved, said Dougie Youngson, analyst at Arbuthnot Securities.
A source told Reuters on Sunday that AAR's board would consider TNK-BP's uncertain prospects in the light of increased competition from Rosneft and the possible need to enhance international expansion.
BP said on Sunday it wanted to enter fast track arbitration to settle the dispute with AAR and had written to the chief executive of TNK-BP, Mikhail Fridman, requesting this arbitration.
The source also said that AAR's lawyers had written to David Peattie, a BP representative on TNK's board, alleging he was in breach of his duties as a director of the joint venture because of his role in negotiations with Rosneft and that TNK-BP was starting legal proceedings against him. (With reporting by Melissa Akin in Moscow, Douglas Busvine in Vienna and Simon Falush in London; writing by Sophie Walker; editing by Will Waterman and Alexander Smith)