The Chief Executive of BP threatened his oligarch partners in TNK-BP with a long and hard fight in their battle for control of the Russian oil company, as BP reported better-than-forecast quarterly profits.
Tony Hayward said BP would use "all legal means" to fight the four billionaires who own 50 percent of TNK-BP, Russia's third-largest oil producer.
TNK-BP's CEO Bob Dudley fled Russia last week, blaming a campaign of harassment launched by the billionaires, which operate as the Alfa Access Renova (AAR) consortium.
Analysts said the departure was a sign AAR was gaining the upper hand but Hayward said the battle was only starting.
"We've only been at it six months ... We will see who is the weaker party in due course," Hayward told reporters at a press conference in London to announce BP's second-quarter results.
Hayward said Dudley was in a central European location, which Dudley would likely reveal "in the next day or so."
When asked if BP was prepared to stop TNK-BP from paying out dividends to put pressure on AAR, which has opposed a cut in dividends to pay for higher investment, Hayward replied all options were on the table.
The dispute is viewed by analysts as a test of the investment climate in Russia under new President Dmitry Medvedev and of whether the country is safe for other foreign investors to do business.
Hayward said his partners had employed arms of the state against BP and warned other foreign investors in Russia to take heed of events.
"My advice would be 'tread with caution'," he said.
Analysts at Credit Suisse said BP shares traded at a 12.5 percent discount, as measured by their price-earnings ratio, to rivals, due to the uncertainty over TNK-BP.
Jason Kenney at ING said it might now be in BP's interest to sell out.
BP said earlier on Tuesday its replacement cost (RC) net income was $6.85 billion in the second quarter, up 6 percent on the same period of 2007.
However, this result was depressed by non-cash charges of around $2 billion related to long-term gas contracts, which European accounting rules force BP to value as derivatives.
Excluding these charges and one-off items such as the sale of oil fields, the RC net profit was up 61 percent at a record $8.63 billion, beating an average forecast of $7.70 billion in a Reuters poll of nine analysts.
"It's a good result," said ING's Kenney.
BP said its share of second quarter net income at TNK-BP almost doubled to $1.35 billion in the quarter.
Nonetheless BP shares lagged rivals, closing 2.5 percent lower at 506.75 pence.
RC profit strips out unrealized gains from changes in the value of fuel inventories and is comparable to U.S. net income.
BP's core oil production unit was the main profit driver.
Oil prices averaged over $120 a barrel in the second quarter -- almost double the level in the same period of 2007 -- before rising to a record high above $147/barrel on July 11.
The world's third-largest non-government controlled oil company by market value said production was broadly flat compared to the same period in 2007, at 3.83 million barrels of oil equivalent per day (boepd).
This was in line with analysts' forecasts.
A BP spokesman said the results were helped by a lower-than- expected tax rate that was due to a lag on tax payments at TNK-BP.
Profit at BP's refining division collapsed to $539 million from $2.7 billion in the second quarter of last year.
BP's refining portfolio is focused in the U.S., where it said margins halved compared with the same period last year.
BP said it would pay a dividend of 14 cents per share, slightly ahead of what analysts had expected.