By Michael Stott and Conor Sweeney

MOSCOW, Nov 20 (Reuters) – Russian oligarchs have taken effective management control of BP’s Russian oil venture TNK-BP (TNBPI.RTS: Quote,Profile, Research, Stock Buzz) as part of an exodus of foreign executives from senior positions, according to TNK-BP sources.

The lucrative oil company, which made a profit of $4.7 billion in the first half of 2008, was at the centre of a bitter struggle earlier this year over strategy and control between BP and four Russia-connected billionaires.

The company was at first hailed as a flagship for western investment in Russia, then as a textbook case of the problems that can strike foreigners attempting to do business in Russia.

The battle, in which BP (BP.L: Quote, Profile, Research, Stock Buzz) accused the Russian side of behaving like raiders, ended with a truce in September when BP agreed to replace TNK-BP’s CEO and appoint independent directors.

Since then, the wave of labour inspections, visa problems, security service raids and court cases that engulfed the company and threatened to cripple its operations have suddenly stopped.

The Russian side, represented by the AAR consortium, said it waged a struggle because BP was treating TNK-BP as a subsidiary and was not respecting their rights as equal shareholders.

BP presented the summer truce as a fair deal guaranteeing that TNK-BP was governed in the interests of both sides. BP CEO Tony Hayward said at the time BP had “made some modest adjustments to give the company a little more freedom”.

Company insiders paint a different picture and say BP has lost the battle for control, leaving it with limited influence.

“They (BP) had no strategy to deal with the full onslaught of the Russian shareholders this summer. BP capitulated and it is merely an equity investor like ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz) in LUKOIL (LKOH.MM: Quote, Profile, Research, Stock Buzz),” said one departing executive.

DRIVING SEAT

German Khan, one of the four Russian owners and TNK-BP’s executive director, is seen as the main force to have made life tough for foreigners, ultimately forcing them out.

TNK-BP CEO Bob Dudley, a former BP manager, is still officially in the job but fled Russia to a secret location during the summer troubles.

“Since September, Khan has structured the organisation the way he wants it,” said one company source. “It is clear he is running the company — he is the real CEO.”

Khan did not respond to a request for an interview. AAR’s CEO Stan Polovets declined to comment. BP and TNK-BP denies the Russians have taken control and dispute Khan’s influence.

“There is a slight misunderstanding about his activities, the day-to-day activities are handled by a senior management team, including German Khan and other people. I think it would be wrong to say he has effective control,” said the BP spokesman.

Just a handful of the 150 expatriates who worked in senior management and engineering positions in TNK-BP will remain at the oil producer by the start of next year.

Maria Dracheva from TNK-BP said the exodus of foreign executives was due to the fact that most of them served for almost five year and wanted to move to other places. “We want to keep the international component of our management because we view it as a competitive advantage.”

An AAR source said TNK-BP would hire more expats in the futur.: “In about a year, TNK-BP will have people from everywhere – BP, Shell (RDSa.L: Quote, Profile, Research, Stock Buzz), ExxonMobil (XOM.N:Quote, Profile, Research, Stock Buzz).”

But outgoing TNK-BP executives argue the newcomers listen only to the Russian side. “He (Khan) has replaced them with people in his own image,” one source said.

Imminent departures include executive vice president of technology Richard Herbert and VP for business support Simon Bennett. Others such as chief financial officer James Owen and executive vice president of downstream Tony Considine have already left.

WHO REPRESENTS BP?

The company’s 12 executive vice presidents had represented the partners on a 50-50 basis but after the current wave of departures, none will have a BP background, said one source.

“The point is, who represents BP’s interests? There’s only a couple of people left … There will be no executive vice presidents left, none,” the source said.

At the next level down, among non-executive vice presidents, most but not all BP-linked staff are leaving too, including Steve Ridlington, VP for treasury, and Robert Anderson, VP for major projects.

Though angry at the Russians’ tactics, departing managers primarily blame BP for failing to defend former staff who wished to remain in Moscow and continue what had been a successful blend of Russian and international expertise.

The BP spokesman said the new CEO, whoever that may be, would appoint his own management team.

Managers inside TNK-BP say although the company is awaiting a new chief executive, to be nominated by BP and then approved by the oligarchs, the strong favourite for the job is unlikely to pay much heed to BP’s interests.

The oligarchs want Denis Morozov, former head of mining group Norilsk Nickel (GMKN.MM: Quote, Profile, Research, Stock Buzz), to get the job at a Dec. 11 board meeting.

Morozov has no oil industry experience but worked for Alfa Bank, part of the Alfa Group which is owned by two of the four oligarchs, in the 1990s and is a long-standing friend of Alfa Bank head Pyotr Aven, a close business partner of TNK-BP co-owner Mikhail Fridman.

Asked whether BP really expected Morozov would act independently of the Russian side, a company spokesman said: “There’s not much point in BP nominating someone who will not be approved by the board and the board is made up of five representatives from each side.” (Editing by David Holmes)