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The Observer: BP battles to save image as investors’ trust drips away

EXTRACT: When Shell’s fortunes plummeted two years ago following revelations that it had mis-stated the value of its reserves, BP was able to dine out as the company that people could trust.

THE ARTICLE

Richard Wachman
Sunday September 10, 2006

Has there has been systemic management failure at oil giant BP? The company, you may recall, faces a spate of regulatory and criminal investigations in the United States, where its conduct and safety record are under intense public scrutiny.

BP, as you would expect, is fighting its corner and rebuts such allegations. But the real news here is that politicians and investors are asking the question. Until two years ago, BP could boast of an almost unblemished record.

Last week, company officials were grilled by a Congressional committee about oil spills and pipeline corrosion that have forced BP to shut down half its huge Prudhoe Bay facility.

It was a gruelling hearing, with BP accused of incompetence, and doubts expressed about its ability to maintain its network. This is serious stuff when you consider that 40 per cent of the company’s sales are from the US.

BP has also been hit by an explosion at its Texas City oil refinery, accusations of price fixing in the propane gas market, and delays in restoring production at its Thunder Horse platform in the Gulf of Mexico.

It is difficult at times like these to remember that this is Lord Browne’s BP, one of Britain’s largest and most successful multinationals producing annual profits of $25bn. The same company that was transformed by Browne following a number of acquisitions achieved at a time when oil companies were going cheap because the price of crude was down at $10 a barrel.

When Shell’s fortunes plummeted two years ago following revelations that it had mis-stated the value of its reserves, BP was able to dine out as the company that people could trust.

That trust has been eroded and few doubt that there is room for an improvement in the company’s internal controls. And yet, no reputable analyst believes that BP represents a significant risk to investors.

It throws off so much cash that it can easily deal with the financial fallout of what is happening in the US. Systemic management failure is a serious accusation, but nobody is pointing at a paper trail leading up to Lord Browne’s office in London. Nor is it easy to link events in North America that may have happened in quick succession but are very different in nature.

Only one thing can be said with certainty: BP has suffered reputational damage, which is difficult to quantify, but no less damaging as a result. And it may take longer to repair than people think, especially in the United States, its most important market.

http://observer.guardian.co.uk/business/story/0,,1868628,00.html

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