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Sunday Telegraph: Après moi, le déluge

Sunday Telegraph Lord Browne

Golden age: Lord Browne was fêted
as the Sun King of the oil industry

In his heyday at BP, Lord Browne earned the soubriquet of Sun King. But now his reign is drawing to a close, Sylvia Pfeifer and James Hall examine if the oil giant isn’t too large a kingdom to be ruled by one man

Britain’s business elite jetted off to Barbados over the New Year to escape the grey winter skies over London. Among those soaking up the Caribbean sun was Lord Browne of Madingley, the chief executive of BP.
 
For Browne, who was staying with friends, the blue skies offered a welcome respite from the troubles at home. The 58-year-old, thrice voted Britain’s most admired businessman and fêted as the “Sun King” of the oil industry, had a lot on his mind.

In a few days’ time, he was due to update investors on BP’s trading and the figures made for grim reading: production at the oil company, a key measure of its financial health, was slipping. Browne was also bracing himself for the publication of a highly critical report on BP’s safety record, in particular relating to an explosion at its Texas City refinery two years’ ago which left 15 people dead and injured 170.

The explosion was one of several accidents at the company’s North American operations and Browne’s reputation was under fire. After nearly 12 years at the helm, the events of the past 18 months were threatening to overshadow his legacy at the oil company, which controls a tenth of Britain’s pension funds.

The aftershocks of a damaging boardroom row with Peter Sutherland, BP’s chairman, in the summer over his retirement date were also lingering. At the time, the board had agreed that Browne should leave at the end of 2008 but with media speculation intensifying, a plan was hatched before Christmas to appoint a chief operating officer and CEO designate in the new year.

But with things threatening to turn from bad to worse and BP’s share price languishing at an 18-month low Browne began to think what had seemed unthinkable just a few months ago: that he should leave early. He took soundings from a handful of advisers in Barbados and by the time he arrived back in London last Tuesday, his mind was made up.

In a brief meeting with Sutherland at BP’s St James’ Square head office he told him he was thinking of bringing his retirement forward. Sutherland made no attempt to dissuade him. “There was a general feeling of relief,” is how one company executive described the board’s reaction to the news.

The board met on Wednesday to discuss Browne’s departure and the appointment of his successor. BP’s chairman’s committee, which had been handling the succession, is understood to have identified Tony Hayward, BP’s head of exploration-and-production, as Browne’s successor before Christmas.

Another board meeting took place on Friday afternoon ahead of a formal announcement: after months of speculation, the sun was finally going to set on the industry’s Sun King.

Investors welcomed the news, sending shares in BP up and adding £3.3bn to the company’s market value. Sutherland paid tribute to Browne, describing him as “the greatest British businessman of his generation”.

“His vision, intellect, leadership and skill have been a wonder to behold and he will be a difficult act to follow,” he said.

Other tributes followed thick and fast.

“John made over a period of time a major contribution to the industry, and was pro-active and advanced in his thinking,” said Jeroen van der Veer, the chief executive of Browne’s old rival, Royal Dutch Shell.

But for Browne, who is at home in London this weekend, such tributes will make bittersweet reading.

This week’s publication of the report by James Baker, the former US secretary of state, on BP’s safety culture, will be grim. It is expected to be highly critical not just of the company’s internal safety procedures but of the management.

Given the timing of the announcement of Browne’s early departure, it is difficult not to connect the two events. Company executives privately insist the two are unrelated but several shareholders believe Browne is being lined up take the rap.

“The fact that we were moving into a succession period – combined with quite negative reports – has dictated the shortening of the time-table,” says Robert Talbut of Royal London Asset Management. “I think it is quite convenient for the board to have Lord Browne around for six months to act as a lightning rod. He will clearly take the blame for those reports.”

Browne’s supporters will hope that his reputation can survive the next few months intact and that he will ultimately be remembered for transforming BP into one of the world’s largest oil companies with a market value of £106.5bn.

His decision to leave his beloved BP early will not have been an easy one. When he walks out of the Mayfair offices for the last time at the end of July, he will be turning his back on much more than an employer: unlike many of the chief executives running Britain’s largest companies, Browne has been at BP man and boy.

His father, a former Army officer, worked for the Anglo-Persian oil company, the forerunner of BP. As a result, Browne spent his childhood in a number of different places around the world, including Singapore and Iran.

At the age of 18, the young Browne started his working life at BP, as a university apprentice while studying physics at Cambridge.

He was elevated to chief executive in 1995 after four years as head of exploration and production.

Before his appointment to the top job, the company was widely perceived to be in decline. Sir Robert Horton, Browne’s predecessor but one, was forced out after presiding over a drastic slump in performance. Lord Simon, the next chief executive, stabilised the company but by the mid-1990s BP was still seen as a medium-sized oil company that was too reliant on production from old oil fields, the Forties in the North Sea and Prudhoe Bay in Alaska.

Browne moved rapidly to clean up the company’s finances and management structure and then he went hunting. With the oil price trading at $10 a barrel, his timing was impeccable.

In 1998, Browne found his prey: Amoco, then a flabby American oil company. The $62bn deal was, at the time, the world’s biggest industrial merger and catapulted BP into the league of the super-majors such as Exxon and arch-rival Shell. Nowhere were the shock waves stronger than on the other side of the Thames, at the UK headquarters of the Anglo-Dutch oil group.

Sir Mark Moody-Stuart, the chairman of Anglo American who was chairman of Shell at the time, recalls: “As my wife says, he spoiled my summer holiday. These were remarkable moves made – with the benefit of hindsight – with excellent timing.”

The deal triggered a wave of -others in the industry. Within months, Exxon bought its smaller rival Mobil. Browne quickly struck again, buying Arco, another US company, in 1999 for $27bn plus $4bn of debt.

The deals not only allowed BP to cut out costs but more significantly brought crucial oil-and-gas reserves.

Looking back, the closing of these transformative deals probably marked the height of Browne’s tenure at BP.

Says Fadel Gheit, senior energy analyst at Oppenheimer in New York, who has followed the company for years. “I credit him with all the M&A in the sector. Because of what he did with Amoco and Arco he is the guy who created Exxon and Shell. They wouldn’t be here without him. He was the guy who dared to ask.”

More was to follow. Four years ago, BP became the first major Western oil-and-gas company to invest in Russia, snapping up a 50 per cent stake in TNK. Russian oilfields now represent about 20 per cent of BP’s production.

But it wasn’t just on the corporate stage that Browne set the agenda. In the late 1990s BP became the first oil company to commit to action on -climate change and Browne promised to go “beyond petroleum”. He followed this in 2005 by launching BP Alternative Energy with an $8bn investment over 10 years.

Along the way, the cigar-smoking Browne became a regular at Downing Street, where he was one of Margaret Thatcher’s favourite businessmen. But he has been equally welcomed by Tony Blair’s Labour Government. He was knighted in 1998 and made a life peer by Blair six years ago. Indeed the friendship is seen as so close that some nickname the company Blair Petroleum. Browne also hired one of Blair’s closest advisers, Anji Hunter.

But Browne’s halo started to slip 18 months ago. The explosion at BP’s Texas City refinery was the first blow to what had hitherto been seen as one of the most unblemished safety records of all the world’s oil giants.

Although the company responded quickly in the aftermath of the explosion – Browne flew out to Texas immediately to talk to workers at the plant – the incident set alarm bells ringing. Supporters of the company said many of the problems at the 70-year-old plant had been inherited by BP when it acquired the refinery as part of its acquisition of Amoco. Nevertheless, others questioned whether it was a sign not just of a lack of investment but also that BP’s internal systems had failed.

In October last year, the US Chemical and Safety Hazard Investigation Board (CSB), an independent federal agency, concluded that budget cuts caused a progressive deterioration in safety.

“BP implemented a 25 per cent cut on fixed costs from 1998 to 2000 that adversely impacted maintenance expenditures and infrastructure at the refinery,” said Carolyn Merritt, the chairman of CSB at the time. “Every successful corporation must contain its costs. But at an ageing facility like Texas City, it is not responsible to cut budgets related to safety and maintenance without thoroughly examining the impact on the risk of a catastrophic accident.”

But BP’s problems were not just confined to Texas. Trouble was also brewing in Alaska. In August last year, the company was forced to shut down half the production at its -Prudhoe Bay field, the largest producing field in the US, after it discovered severe corrosion on the pipes that carry oil from the processing facilities to the Trans-Alaska pipeline system. The shutdown, which caused severe disruption to supplies, was not the first time that things had gone wrong in Alaska.

Several long-term industry watchers believe BP cut investment in areas such as Alaska during the late 1990s when crude prices were low and oil companies around the world were trying to control costs.

“The worrying thing for me is that there have been too many incidents,” says a former BP executive. “The problems pre-date the Amoco acquisition. They go all the way back to Alaska.”

“How do you know when you’ve done too much cost-cutting,” he asks.

Things only got worse after Texas City and Alaska. Last June, it emerged that two grand juries, one in Texas and one in Alaska, were investigating the company for possible criminal action. In September, the US House of Representatives energy committee subpoenaed BP’s top US executives for hearings.

At the same time, a row was brewing in BP’s boardroom that threatened to blow apart Britain’s most respected company. At issue was nothing less than the succession. Browne had been due to retire from BP when he turned 60 in February 2008 but speculation was rife in the City that the chief executive was keen to delay his retirement – in part to leave behind a clean slate for any successor.

Amid mounting speculation, Sutherland, a forthright 60-year-old who also chairs the international arm of Goldman Sachs, the investment bank, decided he needed to act. Sutherland told Browne that events were threatening to spiral out of control and the company needed to confirm publicly when he would retire. The board, he told Browne, was unanimous in its view that he should abide by the original decision to retire at 60.

Browne backed down and the company announced he would leave at the end of 2008. But the compromise did little to temper speculation as to who would follow in his foot-steps.

History will be the ultimate judge of how Browne will be remembered. But an awful lot depends on what happens this week, perhaps the most portentous in his 40-year career at BP. For once even one of the world’s most astute dealmakers will have no control over events.

Critics will remember how quickly his reign fell apart in the past few months while supporters will remember Browne as one of the few giants of the modern oil industry, one with true vision, a talent for deals and the one who took BP to its place as a leading international company.

Ultimately, says one industry executive, perhaps BP simply became too big to be managed by one man.

“BP may well be too big for one man to run as an international autocracy – even if that man is as intelligent and gifted as Lord Browne,” he said.

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